NZ dollar rises on speculation ahead of Fed meeting

File photo / NZ Herald

The New Zealand dollar advanced as investors pulled back expectations for the Federal Reserve to signal a rise in interest rates at this week's meeting and on reports China is adding liquidity to its banks to bolster economic growth.

The kiwi rose to 81.97 US cents at 8am in Wellington, from 81.61 cents at 5pm yesterday. The trade-weighted index gained to 78.57 from 78.47 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, declined after the Wall Street Journal Fed commentator Jon Hilsenrath speculated the central bank would maintain its pledge to keep interest rates low for a 'considerable time' in its policy statement scheduled for release tomorrow morning New Zealand time, prompting some investors to pull back their expectations that the phrase could be dropped.

Also weighing on the greenback and strengthening the kiwi, news website Sina.com reported China is providing 500 billion yuan of liquidity to the country's five biggest banks, in a move to stimulate the economy and bolster growth to achieve the country's 7.5 percent growth target this year. China is New Zealand's largest trading partner.

"Everything basically went up against the US dollar so the US dollar got clobbered overnight from those two pieces of news," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand.

The kiwi is likely to be "slightly bullish" today ahead of the Fed decision scheduled for release at 6am New Zealand time tomorrow, Speizer said.

"If they remove the language, the US dollar will go back up, if they don't remove the language, it will probably stay down," Speizer said.

Early this morning, dairy product prices rose in Fonterra Cooperative Group's latest GlobalDairyTrade auction, inching higher from the lowest level since July 2012, as declines in butter milk powder and cheddar were offset by gains in rennet casein and skim milk powder.

That probably came as a relief to some, following recent sharp falls, although it wasn't the main reason for the kiwi's strength this morning, Bank of New Zealand markets strategist Kymberly Martin said in a note.

Today, New Zealand second quarter balance of payments data is scheduled for release at 10:45am.

The New Zealand dollar slipped to 90.12 Australian cents from 90.58 cents yesterday, was little changed at 50.35 British pence from 50.33 pence, advanced to 63.25 euro cents from 63.08 cents and gained to 87.83 yen from 87.53 yen.