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NZ dollar pushes back above 70 US cents as Fed talks down early exit strategy

Monday 22nd February 2010

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The New Zealand dollar pushed back over 70 US cents after regional Federal Reserve officials talked down tighter monetary policy, despite a hike in the discount rate last week.

The kiwi retraced about two-thirds of its losses from Friday as St Louis Fed President James Bullard said the idea of the central bank raising interest rates this year is “overblown.”

New York Fed President William Dudley said the move was “about improvement in banks” and that the general timeline is still in place.

The speeches damped some of the sentiment for the greenback, with the Dollar Index, a measure of the currency against a basket of six trading partners, declining 0.7% to 80.55.

“Fed speeches by a multitude of governors have given the message ‘don’t get too carried away’,” said Imre Speizer, markets strategist at Westpac Banking Corp.

“Price action aside, the Fed move is clearly supportive for the U.S. dollar and our long-range forecast” for a weaker kiwi in coming weeks, he said.

The kiwi jumped to 70.07 U.S. cents from 69.90 cents on Friday in New York, and climbed to 64.95 on the trade-weighted index of major trading partner currencies, from 64.90. It rose to 64.06 yen from 63.84 yen on Friday, and slipped to 77.78 Australian cents from 77.97 cents.

It dropped to 51.36 euro cents from 51.56 cents last week, and was little changed at 45.24 pence from 45.20 pence. Speizer said the currency may trade between 69.70 US cents and 70.60 cents today, and will probably range-trade with little in the way of data out in Australia and New Zealand until Wednesday, when central bank Governor Alan Bollard releases his survey of inflation expectations.

Investors’ appetite for riskier, higher-yielding assets was bolstered by the release of the European Union’s plan to solve Greece’s fiscal woes.

Though a bailout was ruled out, the proposal laid out a timeline for the Mediterranean nation to slash its deficit, and there’s mounting speculation it will look to tap investors with a bond issue before the end of the month.

Businesswire.co.nz

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