The New Zealand dollar jumped more than 1 US cent after the Federal Reserve unexpectedly chose not to start tapering its US$85 billion a month monetary stimulus programme this month, citing strains in the US economy.
The kiwi rose to a four-month high of 83.75 US cents, and was trading at 83.64 cents at 8am in Wellington, from 82.25 cents at the 5pm market close yesterday. The trade-weighted index rose to 77.61 from 77.01 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, slumped after the Fed said it would continue its stimulus programme as it awaited evidence of a more stable economy to start trimming the purchases. Most market watchers had expected the Fed to start reducing the asset purchases by at least US$10 billion this month, which would have supported the US dollar.
"The kiwi is going to keep outperforming," said Mike Jones, currency strategist at Bank of New Zealand. "A sliding US dollar floats all boats, but the kiwi is probably going to float more than most.
The New Zealand dollar had gained ahead of this morning's decision, released at 6am local time, as investors were lured by higher local interest rates and buoyant commodity prices.
"The kiwi was in the starting blocks ahead of the Fed decision," said the BNZ's Jones. "The fundamentals are all there to push the kiwi dollar higher, it just needed the green light from the Fed and now we have got that green light and so the kiwi has launched."
The kiwi may touch 84 US cents today although demand from local importers may limit gains, Jones said.
The Fed also downgraded its forecasts for the US economy, saying it expects growth in a 2 to 2.3 per cent range this year, down from its June estimate of 2.3 to 2.6 per cent growth. Similarly, next year the Fed expects the US economy to expand 2.9 to 3.1 per cent, down from its previous estimate of 3 to 3.5 per cent.
Meanwhile, in New Zealand today traders will be eyeing a report at 10:45am on second-quarter GDP. New Zealand's economic growth probably slowed to 0.1 per cent in the second quarter from a 0.3 per cent pace in the first quarter as the country experienced its worst drought in 70 years, according to a Reuters survey of economists.
The local currency was little changed at 87.99 Australian cents at 8am in Wellington, from 87.93 cents at the 5pm market close yesterday. The kiwi rose to 82 Japanese yen from 81.58 yen yesterday, advanced to 61.91 euro cents from 61.57 cents and gained to 51.91 British pence from 51.70 pence.