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Kiwi gains as US minutes show desire for more stimulus

BUSINESSDESK: The New Zealand dollar gained after minutes of the last Federal Reserve policymakers' meeting showed a widespread desire for more stimulus to underpin the world's biggest economy.

The greenback tumbled against the yen after the minutes were released.

The kiwi rose to 81.32 US cents from 80.84 cents at 5pm in Wellington yesterday. The trade-weighted index edged up to 72.85 from 72.73.

Minutes of the Federal Open Market Committee's July 31 to August 1 meeting say many members "judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery".

That has stoked speculation the Fed could act in September, making it a double-whammy month, with action also expected from the European Central Bank.

"Most people seem to be aiming for September. It could make September a pretty massive month," says Alex Sinton, senior dealer at ANZ New Zealand. "The kiwi is going to be well supported."

Still, "it is not an easy road higher for the kiwi. The fact all this [central bank] activity is being undertaken, you're acknowledging the landscape is such that you have to take further action".

Traders are looking ahead to the meeting of central bankers at Jackson Hole, Wyoming, as the next opportunity for Federal Reserve chairman Ben Bernanke to hint at what form more stimulus could take.

"Bernanke is likely to say something that will be followed by the market," Mr Sinton says.

With central bankers in major economies needing act to underpin growth, New Zealand's outlook is relatively benign, reasonably supported by fundamentals and nominal yields on offer much better than available elsewhere, he says.

New Zealand 10-year bonds are yielding about 3.73% compared to about 1.7% for comparable 10-year Treasuries and 1.44% for 10-year German bunds.

The kiwi traded at 64.96 euro cents from 64.87 cents yesterday and fell to 63.86 Japanese yen from 64.10 yen. Japan's currency strengthened to 78.53 per US dollar from 79.15 immediately before the FOMC minutes were released.

The New Zealand dollar moved to 77.42 Australian cents from 77.35 cents and was little changed at 51.24 British pence from 51.22 pence.

Comments and questions
2

They don't need QE3, they need to shake the money out of the banks that are hoarding it.

The banks aren't hoarding it .... they siphoning it off into off-balance sheet entities that still have massive holes from when the capital markets froze up on Aug. 2007.

The banks are mostly technically insolvent if you include those liabilities. GAAP was suspended in 2008 so that off balance sheet liabilities were not marked-to-market but instead marked-to-model (i.e. make it up yourself bankster). As far as I know, that is still the situation today .... capital markets frozen (now on permanent central bank life support) and GAAP suspended for bank's off balance sheet liabilities.