The New Zealand dollar mostly held its ground against the greenback overnight after the Federal Reserve's latest stimulus injection came in the form of an extension to Operation Twist and not the hoped for third round of quantitative easing.
The kiwi recently traded at US79.35 cents, down from US79.46c at 5pm yesterday, while on the Trade Weighted Index of major trading partners' currencies it was little changed at 71.62 from 71.58.
Fed chairman Ben Bernanke this morning announced a US$267 billion (NZ$335b) extension to its bond maturity re-profiling, a move that tips the central bank's debt holding away from short-term debt towards longer dated paper in a move aimed at reducing borrowing costs, particularly mortgages.
The announcement dashed hopes of a third round of raw asset buying by the Fed, although Bernanke said the central bank stood ready to do even more to spur on the world's biggest economy.
That saw investors, who had shorted the US dollar, reverse some of their positions, sapping demand for growth-linked currencies such as the kiwi and Australian dollar seen before the Federal Open Market Committee meeting.
"Despite the hype of the FMOC the decision proved to be a damp squib," said Mike Jones, a market strategist at Bank of New Zealand. "QE3 was an outside chance and people seem to have gotten a little head of themselves."
Today's gross domestic product numbers will be the focus of the local session, with the market expecting the New Zealand economy to have grown at a 0.5 per cent pace in the first quarter, according to a Reuters poll.
BNZ is picking 0.6 per cent growth, but Jones said any weakness is likely to only have a temporary impact on the currency as the data is very backward looking and growth indicators for the second June quarter are looking "quite strong".
On the crosses, the kiwi recently traded at 78.00 Australian cents, little changed from A78.04c yesterday, and it rose to 63.08 yen from 62.72 yen. The New Zealand dollar fell to 62.57 euro cents from 62.71 euro cents, but was little changed at 50.52 pence from 50.53 pence.
The kiwi may trade between a range of US78c and US79.40c, according to Jones, with the bias tipped towards the downside.
- © Fairfax NZ News