The New Zealand dollar edged up as investors continue to await the outcome of stalled budget talks in the US, as the deadline for lifting the US debt ceiling approaches.
The kiwi traded in a 40 basis point range during Northern Hemisphere trading, about half its normal volatility, edging up to 83.02 US cents at 8am in Wellington, from 82.95 cents at the 5pm market close yesterday. The trade-weighted index advanced to 77.09 from 76.87 yesterday.
Investors largely looked through this morning's release of the Federal Reserve's minutes of its last meeting in September, even as the minutes showed Fed officials still expect to start tapering its monetary stimulus this year and end the programme in mid-2014.
Traders think it more likely that monetary stimulus will continue for longer as a partial US government shutdown since October 1 weighs on the economy.
"The minutes overnight feel unusually historical," said Sam Tuck, senior manager FX at ANZ New Zealand. "We are still sitting here a little bit paralysed, still waiting for news from the US Congress about what they are going to do."
The partial US government shutdown, after politicians failed to agree on the budget, is now in its second week and is coming up against an October 17 deadline for Congress to agree to raise the US debt limit or risk a default.
"Provided the US government walks to the brink and doesn't actually jump over it, the New Zealand dollar should be advantaged because this dysfunction is just increasing the time it is going to take for the US economy to recover, increasing the amount of time that the Federal Reserve will keep monetary policy easy for and therefore increasing the attraction of the carry trade," said ANZ's Tuck. "But if they do jump over the brink, which isn't a zero possibility, then the world is going to have a big risk-off event which would typically see the New Zealand dollar underperform."
The release of the Federal Open Market Committee's minutes from its September 17-18 meeting showed a decision on tapering the Fed's US$85 billion a month bond buying programme is still dependent on improving economic data.
The Fed's unchanged expectation for tapering is more aggressive than financial market expectations for tapering to start in the first quarter of 2014 and conclude at the end of the year, said ANZ's Tuck.
Financial markets are even more likely to push out the end to tapering after news that Janet Yellen will be nominated as the next head of the Federal Reserve because she is perceived to want a slower exit to tapering, Tuck said.
The Fed has two remaining meetings this year, on October 29-30 and on December 17-18, the last of which will be outgoing chairman Ben Bernanke's final press conference.
In New Zealand today, traders will be eyeing this morning's release of the BNZ-BusinessNZ performance of manufacturing index for September.
Meanwhile in Australia, the focus will be on this afternoon's employment data for September.
The New Zealand dollar was little changed at 87.88 Australian cents at 8am in Wellington from 87.85 cents yesterday and advanced to 80.86 yen from 80.66 yen. The kiwi rose to 61.40 euro cents from 61.08 cents yesterday and increased to 52.03 British pence from 51.57 pence ahead of the Bank of England's rate decision today.