NZ dollar gains after Fed pledges to keep rates low for 'extended period'

Thursday 5th November 2009

The New Zealand dollar pushed higher after the Federal Reserve said it expects to keep interest rates at “exceptionally low levels” for an extended period of time. Traders are awaiting New Zealand labour data today which is expected to show the unemployment rate is continuing to climb.

The Federal Open Market Committee voted to keep the fed funds rate within a target band of zero to 0.25% amid weak economic activity, though it did decide to slow down the pace of its agency debt and mortgage-backed securities purchases. The Fed’s announcement came on the back of a bullish day in equity markets, with stocks on Wall Street rising on stronger risk appetite after the World Bank bumped up its growth forecast for East Asia to 6.7% this calendar year. Still, the kiwi may come under pressure today if the unemployment rate rose substantially above the 6.4% forecast for the third quarter in a Reuters survey.

“The Fed’s statement was fairly guarded, and the risks to growth have tempered the kiwi’s push higher,” said Mike Jones, strategist at Bank of New Zealand. “There’s a prospect of a big fall in the currency rests with the unemployment rate – if that comes in around 7% we could see the New Zealand moving below 72 cents.”

The kiwi climbed to 72.91 U.S. cents from 72.46 cents yesterday and increased to 65.36 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.22.

It advanced to 66.30 yen from 65.66 yen yesterday, and was little changed at 79.81 Australian cents from 79.88 cents. It gained to 48.90 euro cents from 49.05 cents yesterday, and was little changed at 43.93 pence from 43.87 pence.

Reserve Bank of New Zealand Governor Alan Bollard will give a speech to the Trans-Tasman Business Circle today on the differences and similarities between the two nations’ economies, and he is expected to shed some light on why the two central banks’ monetary policy has diverged.

The Bank of England and European Central Bank will review their respective monetary policies today in Europe, rounding out the central bank theme this week, ahead of non-farm payrolls in the U.S. on Friday.

Businesswire.co.nz

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