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Kiwi pares gain as Bernanke leaves markets guessing

Monday 18th October 2010

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The New Zealand dollar pared gains after US Federal Reserve chairman Ben Bernanke hinted that he leans in favour of a second round of asset purchases, disappointing investors hoping for more details about such a package.  

Markets were expecting Bernanke to spell out his position on quantitative easing in a speech on Friday, and so-called commodity currencies strengthened, with the Australian dollar briefly hitting parity with the greenback.  

That unwound after Bernanke said "there would appear, all else being equal, to be a case for further action," but didn't offer any indication as to the size or timing of a second package.

The weekend's events preceded today's third-quarter New Zealand consumer price index data, which is expected to show inflation accelerated at 1% in the three months to September 30, according to a Reuters survey. 

Today's inflation data is the major local event for the week, and a bigger CPI print would "provide the impetus for the kiwi to climb to the top of the range," said Mike Jones, a currency strategist at Bank of New Zealand.  

The kiwi fell to 75.58 US cents from 75.88 cents on Friday in New York, and slipped to 66.85 on the trade-weighted index of major partners' currencies from 66.89.

It dropped to 61.47 yen from 61.58 yen last week, and declined to 76.03 Australian cents from 76.15 cents. It rose to 53.98 euro cents from 53.84 cents on Friday, and edged down to 47.27 pence from 47.32 pence.  

Meanwhile, American investors were pricing in "about $1 trillion of easing in November, and are ripe for disappointment on that front, with the Fed taking a softly, softly approach to QEII (a second round of quantitative easing)," Jones said.

He expects the currency may trade between 75.30 US cents and 76.20 cents today, and will only break above the top of the range if there's more weakness in the greenback.  

The US Treasury delayed its semi-annual currency report until after the US congressional elections on November 2 and the G-20 summit on November 11.

The report will contain an assessment on whether China is manipulating its currency.

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