Dollar leaps above US83c as Bernanke announces opened-ended QE3

The US is going to print the equivalent of $NZ102 billion a month from now until ... whenever.

The New Zealand dollar leapt upwards more than a cent against the US dollar this morning, going from US82.02cents to US83.23 in the hour after US Federal Reserve chairman Ben Bernanke’s announcement.

Dr Bernanke announced an “open-ended” round of quantitative easing, saying the Federal Reserve will increase its balance sheet by about $US85 billon each month by the end of the year.

The new programme of bond buying will continue until the US economy improves and, in particular, the labour market picks up, Dr Bernanke said at his press conference this morning.

The programme, dubbed QE3, follows two previous rounds of bond buying. The first, initiated in the depths of the financial crisis in late 2008, was worth $US1.25 trillion (roughly $NZ1.47 trillion at the time).

The second round, which began in November 2010, was valued at roughly $NZ731 billion then.

To put these numbers in context, New Zealand’s annual GDP, in current prices, was just under $NZ200 billion.

The programme was signalled in advance but the open-ended aspect was not.

The effort was also expected to push the US dollar downwards against other currencies, including that of New Zealand, and in that sense it has been immediately successful.

The kiwi rose as high as 83.13 US cents, trading at 83 US cents at 8am up from 82.19 cents yesterday at 5pm. The trade weighted index increased to 73.35 from 72.86.

"The New Zealand dollar has done an awful lot already this morning – it may slow to build on these recent gains," saysd Alex Sinton, senior dealer at ANZ New Zealand. "You would expect some more US weakness but it may not come on the day."

Topside resistance for the kiwi is likely to come in around 82.30 US cents, he says.

New Zealand's Reserve Bank left its official cash rate unchanged at 2.5% yesterday, 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.

New Zealand's food price index for August will be released by Statistics New Zealand this morning, followed by the ANZ-Roy Morgan Consumer Confidence survey at 1pm.

The kiwi rose to 78.65 Australian cents from 78.39 cents and increased to 51.37 British pence from 50.97 pence. The kiwi climbed to 63.89 euro cents from 63.55 cents and advanced to 64.33 yen from 63.85 yen.

Additional reporting: BusinessDesk