Party winds down for NZ dollar

20:25, Mar 19 2014

The New Zealand dollar's high times against the greenback are numbered as the US central bank signals it will raise its benchmark interest rate faster and further than expected.

The kiwi gave back its gains from the past couple of days to drop more than 1 cent against the US dollar following the news from the US Federal Open Market Committee meeting this morning.

The New Zealand dollar was trading at US85.25c shortly after 8am, down from US86.37c before the meeting.

ANZ senior manager of foreign exchange Sam Tuck said the Federal Reserve would start hiking rates - currently at 0.25 per cent - to as much as 1 per cent by the end of next year.

Tuck said this surprise announcement was paired with the expected US$10 billion taper in bonds purchases for the month. The Federal Reserve was expected to complete the scaling back of its economic stimulus by September this year.

Tuck said the US central bank's announcement that it would raise interest rates faster and further than the market expected showed it was " a little bit more optimistic" about US economic recovery.

The Federal Reserve was in the same position that the Reserve Bank of New Zealand was nine months ago, he said.

However, the US central bank said investors should not put too much emphasis on its forecast as it was subject to adjustment and dependant on economic figures.

"Clearly the market is going to trade on the data rather than a promise from the Fed," Tuck said.

But the interest rate announcement had "driven hopes and prospects for the US dollar".

While there was no change to the positive prospects of the New Zealand dollar, renewed strength of the US dollar meant this was probably the end to the recent highs the kiwi had experienced, he said.

The announcement showed the "long-awaited" US economic recovery had arrived.

Tuck said weak US economic data could push the kiwi back up in the short term but it was unlikely to sustain the highs it had recently enjoyed.

He expected the New Zealand dollar to trade between US84.60c and US86c today.


Fairfax Media