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NZ dollar edges up as Bernanke says US rates will stay low

Thursday 25th February 2010

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The New Zealand dollar edged up as Federal Reserve Chairman Ben Bernanke gave a fairly downbeat assessment of the world’s largest economy and reaffirmed US interest rates will stay near zero “for an extended period.” 

Bernanke told Senators the economy was “likely to warrant exceptionally low levels of the federal funds rate for an extended period” and talked down last week’s hike to the discount rate, though he did signal the central bank will continue to remove its some of its background tools to stimulate the economy.

The prospect of lower rates for longer propped up stocks on Wall Street amid data showing an 11% plunge in new home sales in January to a record low 309,000.  

“Bernanke was the main game in town, and he came out and said what was expected, which saw the US dollar sold off slightly,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

“Equities are starting to drift lower (after the weak housing data) and risk aversion is coming off.” 

The kiwi gained to 69.23 US cents from 68.83 cents yesterday, and rose to 64.30 on the trade-weighted indexof major trading partners' currencies, from 64.05.

It jumped to 62.33 yen from 62.04 yen yesterday, and was little changed at 77.55 Australian cents from 77.58 cents. It edged up to 51.12 euro cents from 50.89 cents yesterday, and increased to 44.93 pence from 44.60 pence.  

Kelleher said the currency may trade between 68.90 U.S. cents and 69.35 cents today, and may get some support at its current levels with exporters likely to buy today.  

Terry McCrann, a columnist with the Herald Sun who closely watches the Reserve Bank of Australia, said a 25 basis points rate hike was almost a certainty next week, and Kelleher said the kiwi is looking “heavy” against its trans-Tasman counterpart.  

Kelleher said he expected the kiwi to "drift" down through the 77 Australian cents level which has held since December 2000 as the disparities between the two economies becomes increasingly apparent, Kelleher said.

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