NZ dollar rallies after Fed stance disappoints markets

Thursday 18th December 2014

The New Zealand dollar rallied after the US Federal Reserve's policy statement disappointed investors who were expecting the central bank to have a stronger bias toward raising interest rates next year.

The kiwi rose to 77.80 US cents at 8.15am in Wellington from 77.24 cents immediately before the release, and 77.36 cents yesterday. The trade weighted index advanced to 77.89 from 77.68 yesterday.

The greenback fell after the Federal Open Market Committee kept its key rate near zero, and tweaked the wording of its policy statement, which initially confused traders who thought it dropped its expectation to keep rates lower for a "considerable time". Instead, the Fed said it will "be patient in beginning to normalise the stance of monetary policy", which it said was consistent with past guidance, though left it open to adapt if circumstance dictate. Investors have been backing an appreciation in the US currency since the middle of the year on the expectation the Fed will start hiking interest rates next year, and are waiting for chair Janet Yellen's press conference for more detail on today's decision.

"In effect, the 'considerable time period' phrase hasn't actually been dropped," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. "That's led to the kiwi higher and the US dollar lower across the board."

Traders are also waiting for New Zealand's third quarter gross domestic product data, which is forecast to show the economy grew 0.7 percent in the three month period, an unchanged pace from the June quarter.

Financial markets have been volatile in recent weeks with oil prices plunging, accelerating the collapse in Russia's ruble and leading to a sharp rate hike to 17 percent from 10.5 percent by that nation's central bank. Oil prices rebounded and stocks on Wall Street rallied.

The local currency climbed to 91.38 yen at 8.15am in Wellington from 90.44 yen yesterday, and was little changed at 94.65 Australian cents from 94.78 cents. It rose to 62.46 euro cents from 61.89 cents yesterday, and advanced to 49.59 British pence from 49.18 pence. The kiwi gained to 4.8190 Chinese yuan from 4.7897 yuan yesterday.

BusinessDesk.co.nz

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