NZ dollar plunges to 7-month low

The kiwi was trading at 80.96 cents at 8am in Wellington, from 81.84 cents at 5pm yesterday. Photo / Getty

The New Zealand dollar dropped to a seven-month low after the Federal Reserve raised its expectation for the level of interest rates by the end of next year, boosting the lure of the greenback.

The kiwi touched 80.73 US cents, and was trading at 80.96 cents at 8am in Wellington, from 81.84 cents at 5pm yesterday. The trade-weighted index fell to 78.09 from 78.50 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, rose to a 14-month high after the Federal Reserve Open Market Committee raised its median estimate for the federal funds rate at the end of 2015 to 1.375 percent, compared with its previous estimate of 1.125 percent in June. The Fed maintained its guidance that borrowing costs would be low for a "considerable time".

"The retention of the pledge that policy rates would be low for a 'considerable time' was a dovish element, balanced by increases to its interest rate forecast," Westpac Bank senior market strategist Imre Speizer said in a note. "Markets appear mainly focussed on the rate forecast and press conference, pushing US interest rates and the US dollar higher."

In New Zealand today, traders will be eyeing gross domestic product data scheduled for release at 10:45am. GDP rose 0.6 percent in the second quarter, for a 3.6 percent annual average rate, according to economists polled by Reuters.

See video: US shares hit all time high as Fed holds steady

The kiwi touched a seven-month low of 49.63 British pence amid uncertainty ahead of today's referendum on Scotland's independence from the UK.

"A vote against independence could see a knee-jerk relief rally from the British pound, as a period of prolonged uncertainty would be curtailed," Kymberly Martin, Bank of New Zealand markets strategist, said in a note.

Meanwhile, the Bank of England minutes to its September meeting showed seven members voted to keep rates on hold while two wanted a rise, the same outcome as the previous meeting in August. The July unemployment rate declined to 6.2 percent from 6.4 percent, data showed. The local currency was trading at 49.73 British pence at 8am from 50.35 pence at 5pm yesterday.

The New Zealand dollar edged up to 90.24 Australian cents from 90.17 cents yesterday and slipped to 62.87 euro cents from 63.19 cents. It decreased to 87.61 yen from 87.75 yen yesterday.