NZ dollar falls after RBNZ keeps rates on hold, Fed keeps slowing money printing

Thursday 30th January 2014

The New Zealand dollar fell after the Reserve Bank kept interest rates unchanged, disappointing some traders hoping for a rise, and after the US Federal Reserve trimmed another US$10 billion from its monthly asset purchase programme, putting emerging markets under more scrutiny.

The kiwi dropped to 81.76 US cents at 5pm in Wellington from 82.38 cents this morning and 82.81 cents yesterday. The trade-weighted index fell as low as 77.36, the lowest since Jan. 3, and was 77.42 at 5pm in Wellington from 78.38 yesterday.

New Zealand's Reserve Bank governor Graeme Wheeler kept the key rate at 2.5 percent today, while saying interest rates will have to go up soon to head off future inflationary pressures. The market had priced in a 30 percent chance of a hike going into the meeting, leaving some traders disappointed after the review.

"It's quite clear that the RBNZ was going to err on the side of caution - why raise rates when things are far from crystal clear?" said Stuart Ive, senior client adviser at OMF in Wellington. "Barring a financial market meltdown, the kiwi is a 'buy on dips' - sooner or later we will start to normalise policy, which in our case means a start to raise rates."

The RBNZ meeting came immediately after the Fed reviewed its monetary policy, trimming back its $75 billion monthly quantitative easing to US$65 billion. That reduction of monetary stimulus in the world's biggest economy has put emerging markets under pressure as they were a key beneficiary of the cheap money, which is now being repatriated to seemingly safer assets.

That fear has led to interest rate hikes by central banks in Turkey and South Africa to shore up steep declines in their respective currencies. Official Chinese government figures today showed manufacturing shrank in January, the first contraction in six months.

New Zealand's economy showed more signs of strength with government figures showing increased building consent issuance and rising inbound net migration in December. RBNZ's Wheeler today said he expects annual growth of about 3.5 percent this year.

The New Zealand dollar fell to 83.68 yen at 5pm in Wellington from 85.46 yen and declined to 93.62 Australian cents from 94.06 cents. It dropped to 59.89 euro cents from 60.65 cents yesterday, and decreased to 49.34 British pence from 49.95 pence.

BusinessDesk.co.nz

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