NZ dollar hits 8 1/2 mth low as improving US economy spurs speculation of end to QE

Monday 20th May 2013

The New Zealand dollar dropped to an eight-and-a-half-month low on optimism an improving economic outlook in the US may prompt that nation's central bank to end its quantitative easing policy.

The kiwi fell to 80.62 US cents from 80.68 cents on Friday in New York and 81.10 at 5pm in Wellington. It touched 80.58 cents late Friday, its lowest level since September last year. The trade-weighted index slid to 76.32 from 77.40 on Friday.

Reports on Friday showed Americans felt better about their economic and financial prospects in early May, with consumer sentiment at its highest in nearly six years, while a gauge of future economic activity rose in April to a near five-year high. This added strength to a buoyant US currency, which has gained on suggestions the Federal Reserve may end its policy of buying US$85 billion of Treasuries and mortgage-backed securities each month to boost growth.

"It's a predominantly US dollar move and domestic factors have limited importance," said Michael Johnston, a senior dealer at HiFX. "People are expecting that the Federal Reserve is going to be trimming back their stimulus package. People are looking for opportunities to sell the kiwi."

The rate of growth in the US economy had been expected to slow in the second quarter as tighter fiscal policy starts to bite. But recent improvement, including in the labour market and retail sales, has suggested the recovery remains resilient.

HiFX expects to see the kiwi break below 80 US cents this week, Johnston said.

Investors will be looking for comments on the future of quantitative easing and the US economic outlook when Federal Reserve Chairman Ben Bernanke testifies to congress on Wednesday.

The New Zealand dollar dropped to 82.87 Australian cents from 83.15 on Friday. It slid to 62.86 euro cents from 63.04 cents and weakened to 53.11 British pence from 53.17 pence. The kiwi was little changed at 82.97 yen from 82.98 yen on Friday.

BusinessDesk.co.nz

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