NZ dollar pares gains after Bernanke fails to signal QE3

Friday 8th June 2012

The New Zealand dollar fell from a one-month high after Federal Reserve Chairmen Ben Bernanke failed to signal further quantitative easing for the US, damping kiwi sentiment that had been lifted by China's unexpected interest cuts.

The New Zealand dollar fell to 76.65 US cents from 77.05 cents at 5pm yesterday. It rose as high as 77.52 US cents overnight, the highest since May 11 on speculation a Chinese rate cut will underpin the world's fastest-growing major economy. The trade weighted index decreased to 69.90 from 70.07.

The New Zealand dollar rallied after China, New Zealand's second-largest export market, unexpectedly cut its interest rate to 0.25 percent, effective tomorrow. That's the first time the People's Bank of China has cut rates since 2008.

Bernanke helped erase the kiwi's advances after signaling the world's largest economy remains at risk from Europe's debt crisis, even as he failed call to for consideration of additional stimulus.

"Broadly speaking the good cancelled out the bad leaving the New Zealand dollar where we were yesterday," said Mike Jones, market strategist at Bank of New Zealand. "Bernanke caused some late US dollar strength." Bernanke's comments were at odds with Fed Reserve Vice Chairman Janet Yellen's speech on Wednesday. Yellen said the US "remains vulnerable to setbacks" and may warrant more accommodation.

The Federal Open Market Committee will meet on June 19-20. Earlier this year the committee pledged to keep interest rates low until at least 2014. The kiwi fell to 77.53 Australian cents from 77.43 cents yesterday at 5pm after New Zealand's largest trading partner unexpectedly added 39,000 jobs in May. That comes just one day after Australia posted annual gross domestic product growth of 4.3 percent, beating economists' forecasts.

The Reserve Bank of Australia decision this week to cut the target cash rate a quarter point to 3.5 percent has also buoyed sentiment for Australia's currency.

"For today, the NZD will continue to look across the Tasman for direction," Jones said.

Australian trade balance figures are set for release, while RBA Governor Glenn Stevens is scheduled to make a speech this afternoon.

In New Zealand, the March quarter's wholesale trade survey will be release by Statistics New Zealand this morning.

The New Zealand dollar fell to 61.10 euro cents from 61.33 cents yesterday at 5pm. The kiwi dropped to 49.44 British pence from 49.81 pence and was little changed on 61.09 yen from 61.16 yen.

BusinessDesk.co.nz

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