Kiwi eases on upbeat Fed

LAURA WALTERS
Last updated 08:44 20/06/2013

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The New Zealand dollar lost ground against the greenback this morning after the United States central bank delivered an upbeat statement on the condition of the world's largest economy.

The New Zealand dollar was trading at US78.71 cents this morning and Trade Weighted Index of major trading partners was down 0.85 per cent from yesterday morning, to 74.1.

The Federal Reserve said risks to the outlook for the US economy and job market had eased since last US autumn, but said it would keep buying US$85 billion (NZ$107b) in bonds a month given the still-high level of unemployment.

The central bank's upbeat narrative led to the greenback rising across all markets, and a drop in equities.

OM Financial senior advisor Stuart Ive said the big moves overnight and this morning were triggered by the renewed strength in the US currency.

The US dollar index rose 0.85 per cent, while the New Zealand dollar dropped 1.5 per cent in the past 24 hours.

The Federal Reserve said the economy was expanding moderately, with officials referring to further improvement in the labour market and the housing sector.

In a statement after a two-day meeting, the central bank's policy-setting panel offered a more upbeat assessment of the risks facing the economy than after they last met in May.

"The committee sees the downside risks to the outlook for the economy and the labour market as having diminished since the fall," the Federal Reserve said.

Ive said that while the Fed's statement was not widely different from those in the past, it did reaffirm the possibility of withdrawing the stimulus package in the near future.

"Certainly all cards are still on the table," he said.

In New Zealand, the local market would be concentrating on the first-quarter Gross Domestic Product (GDP) figures this morning, Ive said.

The market expects GDP to be up at least 0.5 per cent on the previous quarter.

Strong GDP data could help the kiwi regain some strength against the greenback and the aussie, he said, but it would struggle to get back up past the US80c mark in the coming days, Ive said.

"We'll certainly have little bounces here, there, and everywhere," he said, and expected the New Zealand dollar to trade between US77.60c and US79.40c today.

"We've wiped out the high levels that we've reached," he added.

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- BusinessDay.co.nz

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