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NZ dollar dips after Fed minutes not as dovish as expected

Thursday 21st February 2019

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The New Zealand dollar dipped after the release of the minutes from the US Federal Open Market Committee's January meeting, which weren't as dovish as the investors expected. 

The kiwi was trading at 68.61 US cents at 8.15am in Wellington from 68.72 cents at 5pm yesterday in Wellington. The trade-weighted index was at 74.15 from 74.29.

The minutes showed tighter financial conditions and the prospect of muted inflation convinced Fed officials they could be patient regarding any rate increases.

However, "they were not as dovish as they could have been," said Imre Speizer, market strategist at Westpac. He said investors may have been expecting the Fed to say it would be on hold for the foreseeable future and instead the minutes indicated that rate hikes are still under consideration if the forecasts are met. 

According to the minutes, members also agreed to add a sentence indicating that, in light of “global economic and financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”

This sentence was intended to convey the committee’s view that a "patient and flexible approach was appropriate at this time" as a way to manage risks while assessing incoming information bearing on the economic outlook, the minutes said. 

Looking ahead, the domestic focus will now be on the Tax Working Group, set to unveil its final report and any recommendation on a contentious capital gains tax. Australia's labour market data will also be closely watched. 

The New Zealand dollar was trading at  95.72 Australian cents from 95.90 cents, at 52.50 British pence from 52.59 pence, at 60.47 euro cents from 60.56 cents, little changed at 76.04 yen from 76.09 yen. It fell to 4.6079 Chinese yuan from 4.6197 yuan.


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