NZ dollar rises as investors unwind bets on Federal Reserve tapering monetary stimulus

Friday 9th August 2013

The New Zealand dollar rose to its highest in almost two weeks as investors unwound bets the greenback would advance amid uncertainty about when the Federal Reserve will begin tapering monetary stimulus.

The kiwi jumped to 80.17 US cents at 8am in Wellington, after earlier touching 80.46 cents, from 79.60 cents yesterday. The trade-weighted index increased to 75.27 from 74.90 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, fell to its lowest in almost two months amid uncertainty about when the Fed will start to pull back its US$85 billion a month bond buying programme, which has debased the US dollar. Investors received little guidance in last month’s statement from the Fed and are awaiting the next Federal Reserve Open Market Committee decision to follow a two day meeting on Sept. 17-18.

“The Fed has given very little guidance on if they are going to taper or not taper and there is a big time window before the next FOMC,” said Martin Rudings, senior advisor at OM Financial. “The market was extremely long US dollars and those positions have been building in regards to the prospects of tapering but now we don’t know where we sit.

“Every day we think we are getting closer to them tapering and it is likely to be September,” Rudings said. “We have got to wait to get confirmation of that. We are seeing a scaling out of long US dollar positions in the meantime.”

A report from the US overnight that initial jobless claims fell over the past month to the lowest in five years supported sentiment for tapering to start in September, Rudings said.

The New Zealand dollar edged up to 87.97 Australian cents at 8am in Wellington, from 87.68 cents yesterday ahead of Australia’s release of its Statement of Monetary Policy at 1:30pm local time today. Traders will be eyeing the central bank’s economic forecasts for signs of whether it is likely to cut the benchmark rate further following a quarter point reduction to 2.5 percent on Tuesday.

“You have got to suspect that will be dovish,” said OM Financial’s Rudings, who recommends investors sell the Aussie and kiwi dollars on gains.

The Australian dollar may benefit today should economic data out of China prove better than expected, however any gains will likely be short lived because of a slowdown in the Australian economy and tapering in the US, he said.

“We are seeing these levels as levels to start scaling into short positions again because as a result of tapering starting in September the US dollar strength will return to the market and probably be the main theme for the balance of the year,” he said.

The Aussie is likely to fall below 90 US cents and the kiwi head to the low 70 US cent level towards the end of the year as a pickup in the US economy encourages multinationals to bring their money home, he said.

In New Zealand today, the statistics department publishes retail card spending figures for July at 10:45 am.

The local currency advanced to 77.53 yen from 76.92 yen yesterday and gained to 59.89 euro cents from 59.66 cents. The kiwi rose to 51.58 British pence from 51.36 pence.

BusinessDesk.co.nz

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