Kiwi gains ahead of Fed QE3, RBNZ pushes out rise timeline
BUSINESSDESK: The New Zealand dollar rose in local trading in anticipation the Federal Reserve will start printing more money to spur the US economic recovery, and after the Reserve Bank here pushed out its path towards higher interest rates.
The kiwi rose to 82.19 US cents at 5pm in Wellington from 81.94 cents at 8am and 82.01 cents yesterday. The trade-weighted index was little changed at 72.86 from 72.85 yesterday.
Traders expect Fed chairman Ben Bernanke to announce a third round of asset purchases that will include mortgage-backed securities after the Federal Open Market Committee's policy review tomorrow in Washington.
The prospect of more liquidity in the US has put pressure on the greenback, with the Dollar Index, a measure of the currency against a basket of its peers, dropping 2.6% to 79.56 since Mr Bernanke signalled he would embark on QE3 at the central bank summit in Jackson Hole, Wyoming, on August 31.
"People are buying ahead of QE3. It's the last chance to get in," says Imre Speizer, market strategist at Westpac Banking. "If we get it, the kiwi's going to the moon."
The kiwi's gain also comes after the RBNZ held the official cash rate at 2.5%, while delaying its forecast increase in the 90-day bank bill rate – seen as a proxy for the benchmark interest rate – until 2014.
The review was governor Alan Bollard's last before former World Bank executive Graeme Wheeler takes over on September 25.
Dr Bollard told parliament's finance and expenditure committee the bank's ability to influence the exchange rate by moving the OCR, saying New Zealand's interest rate differential with its trading partners was only part of the equation, and that market sentiment is the main driver behind the kiwi's strength.
"If it's just being done to try and move the exchange rate around, I wouldn't expect to have that effect. And the markets, of course, will look right through that," he said.
The Bank of Korea also held its benchmark seven-day repurchase rate at 3% today, with governor Kim Choong Soo and his board surprising markets picking a quarter-point reduction. South Korea has had to contend with sluggish economic activity and dwindling demand for its exports in a fragile global environment.
The kiwi climbed to 926.96 won, the highest since August 3, from 922.94 won yesterday.
Germany's Federal Constitutional Court backed the country's ratification of the 500 billion-euro rescue fund for the eurozone as well as a budget pact championed by Chancellor Angela Merkel.
The kiwi fell to 63.55 euro cents from 63.72 cents yesterday. It rose to 78.39 Australian cents from 78.24 cents yesterday and was little changed at 50.97 British pence from 51 pence.