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NZ dollar surges to 7-week high as Fed minutes reaffirm low US rates

Thursday 7th January 2010

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The New Zealand dollar surged to a seven-week high after the Federal Open Market Committee’s December minutes painted a gloomier outlook for the U.S. economy.

The FOMC reaffirmed that the state of the world’s largest economy warrants “exceptionally low rates for an extended period,” and a few members on the committee said it might be “desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee’s large-scale asset purchases and continuing them beyond the first quarter.”

The minutes were also more pessimistic about American employment, predicting the jobless rate will remain relatively high during the economy’s recovery.

U.S. non-farm payrolls data out on Friday is expected to be flat after the ADP employment index fell by 84,000.

“The FOMC minutes came out weaker and were a little more dove-ish than expected,” said Murray Hindley, chief foreign exchange dealer at ANZ National Bank. “The kiwi climbed higher when they came out.”

The kiwi rose to 73.69 U.S. cents from 73.32 cents yesterday and gained to 66.87 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.71.

It climbed to 67.99 yen from 67.52 yen yesterday, and slipped to 81.03 Australian cents from 80.19 cents. It rose to 46.01 pence from 45.70 pence yesterday, and eased to 51.03 euro cents from 51.10 cents.

Danica Hampton, currency strategist at Bank of New Zealand, said the currency may trade between 73.40 U.S. cents and 73.90 cents today, though “a push higher towards 0.7450 looks likely in coming sessions.”

The greenback was boosted in the London session after the European Central Bank board member Jurgen Stark said the Euro-zone wouldn’t bail out Greece despite its fiscal problems and credit downgrades.

New Zealand probably recorded a $400 million trade deficit in November, according to a Reuters survey as the pace of export growth lags behind imports. Statistics New Zealand will release the data this morning.

Businesswire.co.nz

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