The New Zealand dollar gave up yesterday's gains after traders decided comments by Federal Reserve chairman Ben Bernanke were not as dovish as initially thought and were more a reiteration of his previous stance.
The kiwi fell to 78.54 US cents, from 79.52 cents at the 5pm market close in Wellington yesterday. The local currency is trading within its range early yesterday before Bernanke's comments prompted a surge to a three-week high of 79.68 cents. The trade-weighted index slid to 74.41 from 75.10 yesterday.
Investors sold the greenback yesterday on the expectation the Fed wouldn't pull back on its US$85 billion a month asset purchase programme any time soon after Bernanke said the US economy still needs "highly accommodative monetary policy for the foreseeable future". The US dollar is back in favour today as investors realised withdrawing stimulus was always dependent on economic data.
"It really is just related to the market taking profit and really looking at what Bernanke said and understanding that he hasn't changed anything, he has just reiterated the Fed's stance," said Stuart Ive, senior client advisor foreign exchange and derivatives at OM Financial. "They are looking at the possibility of pulling back on stimulus but it is not guaranteed, it is dictated by what their employment data is and the general economic circumstances. It was a bit of a reality check. "
The kiwi may trade within its previous range of 77.20 US cents and 78.60 cents, Ive said.
Today in the US, traders will be watching for comments on the future path of monetary stimulus from Fed officials John Williams, James Bullard and Charles Plosser.
"Recent market action remains hostage to what central bankers are doing (or are going to do)," ANZ New Zealand senior economist Mark Smith said in a note.
The New Zealand dollar weakened to 77.41 yen from 78.50 yen after the Bank of Japan yesterday held monetary policy unchanged as expected.
The yen strengthened after the central bank referred to the economy as "recovering" for the first time since before the 2011 earthquake and governor Huruhiko Kuroda said he believed the bank had taken sufficient measures to achieve its 2 per cent inflation target in two years, Bank of New Zealand strategist Kymberly Martin said in a note.
In New Zealand today, the Reserve Bank is scheduled to release details of non-resident bond holdings for June at 3pm.
The kiwi slid to 85.27 Australian cents from 85.64 cents yesterday. The local currency weakened to 77.41 yen from 78.50 yen after the Bank of Japan held monetary policy unchanged. The New Zealand dollar fell to 59.76 euro cents from 60.55 cents and dropped to 51.52 British pence from 52.48 pence.