NZ dollar soars above 85 US cts as Fed expected to hold monetary stimulus for longer

Friday 18th October 2013

The New Zealand dollar soared above 85 US cents for the first time in five months as investors bet delays caused by the US government shutdown means the Federal Reserve will keep monetary stimulus in place for longer.

The kiwi touched 85.24 US cents early this morning, and was trading at 85.02 cents at 8am in Wellington, from 84.24 cents at the 5pm market close yesterday. The trade-weighted index advanced to 78.31 from 78.15 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, fell as the end of a political stalemate in the US turned investor attention to the impact of delayed data caused by a two week government shutdown. Investors expect the disruption will prompt the Fed to push out its plans to taper its US$85 billion a month bond buying programme, which has weakened the US dollar.

"The market has gravitated towards a 'Fed on hold indefinitely' view, which is a plausible initial reaction," David Croy, head of markets research for ANZ New Zealand, said in a note. "With Fed tapering off the visible horizon, the US dollar is under pressure and the focus is back on carry, which is hugely New Zealand dollar supportive."

The Fed unexpectedly chose not to start tapering last month, with officials saying they needed more evidence of an economic revival.

Investors benefit from the carry trade by borrowing in low-interest-rate-currencies to buy higher-yielding assets.

Today, traders will be eyeing Chinese economic data for indications of how Asia's largest economy is tracking. Reports on Chinese gross domestic product, industrial production, retail sales and fixed asset investment are scheduled for release at 3pm New Zealand time.

The most closely watched will be third-quarter GDP which is expected to show China's economy expanded at a 7.8 percent annual pace, up from a 7.5 percent pace in the second quarter.

In Australia, traders will be keeping an eye on a speech by Reserve Bank of Australia governor Glenn Stevens on the UK and Australia's shared history at an Australian/British Chamber of Commerce business lunch in Sydney, expected at 3:10pm New Zealand time.

The New Zealand dollar edged lower to 88.20 Australian cents from 88.27 cents yesterday.

The kiwi edged up to 83.16 yen from 83.07 yen yesterday, slipped to 52.59 British pence from 52.73 pence and was little changed at 62.15 euro cents from 62.18 cents.

BusinessDesk.co.nz

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