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NZ dollar falls as Fed minutes point to tapering; RBNZ loan limits cool rate expectations

Thursday 22nd August 2013

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The New Zealand dollar fell after the Federal Reserve's minutes to its latest policy meeting showed broad support for unwinding monetary stimulus, and proposed limits on property lending help cool rate hike expectations.

The kiwi fell to 78.37 US cents at 5pm in Wellington from 78.47 cents at 8am and 79.87 cents yesterday. The trade-weighted index dropped to 74.05 from 74.64.

Minutes to the Federal Open Market Committee July meeting showed broad support for the central bank's plan to start slowing the pace of its US$85 billion month bond-buying programme. Investors are betting the Fed will start tapering next month, which would give the greenback a boost.

"The Fed minutes sharpened everyone a little that it's a question of when, not if, on tapering," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "The kiwi has been heavy through it all."

Steps by New Zealand's Reserve Bank to impose restrictions on home lending to help curb bubbling property markets is also leaning on the local currency, by reducing the chance of an early rate hike to head off demand for housing.

CBA's Tennent-Brown said the market had started pricing in a faster track of rate hikes than what was being forecast, and that's cooled since the RBNZ announced the restrictions on Tuesday.

"It will be interesting when we get the next MPS (monetary policy statement) in a few weeks to see if the Reserve Bank has altered what they expect the cash rate to be doing," he said.

Chinese manufacturing figures today were better than expected, and while the Australian currency got a small boost, gains were limited for the kiwi. The local currency fell to 87.19 Australian cents from 87.76 cents.

The kiwi fell to 58.74 euro cents from 59.11 cents yesterday ahead of European manufacturing figures, which investors expect will show a pick-up in industrial production activity.

The local currency fell to 77.01 yen at 5pm in Wellington from 77.31 yen yesterday, and declined to 50.24 British pence from 50.64 pence.

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