NZ dollar touches six-week low overnight

The Kiwi dollar fell to a six-week low of 81.90 US cents early this morning.
The Kiwi dollar fell to a six-week low of 81.90 US cents early this morning.

The New Zealand dollar held its ground ahead of a Reserve Bank decision on interest rates today after the Federal Reserve was more upbeat than expected in its assessment of the world's largest economy, prompting US dollar buying.

The kiwi was little changed at 82.25 US cents at 8am in Wellington from 82.28 cents at the 5pm market close yesterday, although it touched a six week low overnight. The trade-weighted index was at 76.13 from 76 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, advanced after the Fed kept its economic assessment largely unchanged following a two-day meeting, allaying fears that it may highlight recent weakness in economic data. The Fed removed from its statement a comment highlighting the risk that tightening financial conditions could slow the pace of improvement in the economy and the labour market, suggesting a more positive stance.

"The Fed is not so concerned about future impacts of current rates," said Sam Tuck, senior manager FX at ANZ New Zealand. "The relative unchanged statement in terms of the assessment of the economy and a removal of concern over financial conditions means that overall the Fed is more upbeat than what the market had feared and that has led to generalised US dollar buying."

Wall Street Journal reporter Jon Hilsenrath, who is closely watched by markets, suggested the Fed hadn't ruled out tapering its US$85 billion a month bond buying stimulus programme in December. The majority of economists expect the Fed to wait until March next year to start tapering. A reduction in the programme supports the greenback because it would reduce the amount of US dollars in circulation, boosting its value.

The New Zealand dollar, which touched a six-week low of 81.90 US cents this morning, is approaching a significant support level of 81.80 cents, Tuck said.

Traders are now looking ahead to the New Zealand Reserve Bank's decision on the official cash rate, which will be released at 9am. Governor Graeme Wheeler is expected to keep the rate at a record low 2.5 per cent and continue to say the next move up will come next year.

"The RBNZ will be the next thing that the markets will look for to see where to drive the New Zealand dollar," said ANZ's Tuck. "Barring a surprise from the RBNZ, we are expecting it to hold above 81.50 US cents."

Also in New Zealand today, building consent data is released at 10:45am, and ANZ business confidence report at 1pm.

The New Zealand dollar was little changed 86.88 Australian cents from 86.76 cents yesterday and advanced to 81.07 yen from 80.65 yen. The kiwi was little changed at 51.35 British pence from 51.25 pence and at 59.92 euro cents from 59.82 cents.

- BusinessDesk

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