NZ dollar falls as FOMC points to stronger growth

Wednesday 14th March 2012

The New Zealand dollar fell after the Federal Open Market Committee pointed to stronger growth in the US economy, while leaving interest rates unchanged near zero, reducing demand for riskier currencies such as the kiwi.

The New Zealand dollar fell to 81.84 US cents at 8am from 82.30 cents yesterday at 5pm.

Federal Reserve policy makers raised their assessment of the US, the world’s largest economy, as the labour market continued to gather momentum, following the best six-month stretch of jobs growth since 2006. The Fed left its interest rate target at zero to 0.25 percent and said rates are likely to stay “exceptionally low” until the end of 2014.

Signs of growth in the US have reduced demand for risk-sensitive assets like the kiwi dollar. The announcement damping the likelihood of the Fed printing money for a third time, a move that would further devalue the greenback and push the kiwi higher.

“Now that the prospect of QE3 is off the table, that has given the US dollar momentum – we are going to see the kiwi struggle to make its recent highs,” said Dan Bell, currency strategist at HiFX. “The kiwi is running out of stream under 82.50 US cents.”

Strong US retail sales helped boost optimism of a global economy recovery. Retail sales in the US increased 1.1 percent in February, the most in five months, Commerce Department figures showed. That was in line with the median estimate of 81 economists in a Bloomberg survey.

“This is why I think the kiwi has failed to break higher,” Bell said. “The recent run of better US data is giving the US dollar more support.”

The kiwi rose to 62.71 euro cents from 62.41 cents as Greece paid the interest due on one of its international bonds and euro-zone finance ministers approved a second rescue for the Mediterranean nation.

Fitch lifted Greece’s credit rating out of the default category on optimism that a debt swap will help the nation fulfill its obligations. It was raised four levels to B- from restricted default and given a stable outlook, according to Bloomberg.

The New Zealand dollar rose to 78.04 Australian cents from 77.97. The kiwi advanced to 68.11 yen from 67.67.

It fell to 52.30 British pence from 52.54 pence. The trade-weighted index increased to 73.73 from 73.27.

BusinessDesk.co.nz

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