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Kiwi pushes above US81c, then falls back

Wednesday 27th April 2011

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The New Zealand dollar pushed above US81c briefly today but market attention is turning to looming statements by the Federal Reserve and an interest rate decision by the New Zealand central bank.

The NZ dollar fell back to be US80.69c at 5pm after rising to US81.06c after confidence rebounded in the National Bank Business Outlook survey and after the Australian dollar soared in reaction to a stronger than expected inflation report.

The NZ dollar remains below the US82.13c post-float peak in 2008. It was at US79.99c at 5pm yesterday.

The US dollar continues to be weak.

BNZ currency strategist Mike Jones said that the NZ dollar had been on a roller coaster ride today. It rose on a strong confidence survey and when the Australian dollar rose.

"From the peak there was aggressive selling of kiwi versus aussie as markets brought forward the timing of aussie rate rise," he said.

The NZ dollar had come back to where it started the day but it had been on a volatile ride.

More volatility is in prospect with the Federal Reserve's policy making arm, the Federal Open Market Committee, starting a two-day meeting which will be followed by a news conference with Fed chairman Ben Bernanke - the first regularly scheduled news briefing by a Fed chief in the US central bank's 97-year history.

An FOMC statement is expected at 4.30am tomorrow New Zealand time, then two hours later Bernanke holds his briefing. At 9am the Reserve Bank of New Zealand releases a regular review of the official cash rate. It is expected to hold the rate at 2.5%.

"We'll probably just see investors stick to sidelines ahead of Fed meeting," Jones said.

He said that if global commodity prices continued their recent ascent, there was every chance of a test of the NZ dollar's post-float high of US82.13c in coming sessions.

If the Fed stuck to the script tomorrow morning - rates on hold, quantitative easing to finish in June, and no chance of near-term policy tightening - there would be little to disrupt the broad themes of bubbly risk appetite and US dollar weakness that had been underpinning financial markets.

The NZ dollar was at 65.81 yen at 5pm from 65.79 yen at 8am from 65.34 yen at 5pm yesterday.

It fell to A74.41c at 5pm from A74.96c at the same time yesterday.

The trade weighted index was 69.00 from 68.81 yesterday.



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