The New Zealand dollar rose above 83 US cents after US equity markets snapped their slide on the back of a commitment from the Federal Reserve that it would keep interest rates near zero for at least two years to stimulate the ailing American economy.
On Wall Street, the Standard & Poor's 500 Index rose 3.8 per cent to 1,161.98, although trading was volatile as traders digested the Fed's statement. The market had been pricing in some form of policy action by the central bank before the announcement, and the muted statement fell short of some expectations.
The announcement saw yields on US Treasuries fall further, with the 10-year Treasury falling 4.2 basis points to 2.275 per cent.
"By guaranteeing low funding costs for the next two years, the Fed has given the market a green light to swing the bat, and start buying assets," said Alex Sinton, a senior dealer at ANZ New Zealand. The guarantee "is a massive green light for carry trades, and this has to be positive for the New Zealand dollar and New Zealand government bonds."
The kiwi recently traded at 83.71 US cents, up from 81.60 cents yesterday, and rose to 71.04 on the trade-weighted index of major trading partners' currencies from 70.91. It fell to 80.29 Australian cents from 80.43 cents yesterday, and rose to 63.16 yen from 63.08. It was little changed at 57.46 euro cents from 57.44 cents yesterday, and rose to 50.54 pence from 49.88 pence previously.
"I see this as a minor tweak and eventually the greater combination European debt and the US fiscal problems will come back into the mix," Imre Speizer, a market strategist at Westpac Bank "I see this as an opportunity to sell the kiwi for the day."
The kiwi may trade in a range of 82 US cents to 84 cents, Speizer said.