Kiwi almost unchanged as traders await Fed meeting outcome

The New Zealand dollar was almost unchanged in local trading as traders await the outcome from the Federal Reserve's monetary policy review and whether the US central bank plans to start unwinding its asset purchase programme.

The kiwi traded at 79.88 US cents at 5pm in Wellington from 79.91 cents at 8am, and 79.87 cents yesterday. The trade-weighted index was little changed at 74.12 from 74.06 yesterday.

Investors are in lock-down until the Federal Open Market Committee announces its assessment overnight in Washington, in anticipation Fed chairman Ben Bernanke will confirm plans to taper the $US85 billion a month bond-buying programme this year.

The greenback has been rallying in recent months amid speculation the Fed will start unwinding its stimulus, and the US Dollar Index was at 80.69 at 5pm in Wellington.

"Our house view is that it's too early to signal tapering," says Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "Relief that there's no tapering should then push up equities, push down the US dollar and push up the kiwi."

He says the kiwi may rise as high as 82 US cents, though that rally might be short-lived with another turnaround in a week or two.

Government figures today showed New Zealand's current account deficit narrowed to $663 million in the first three months of the year from $3.2 billion the fourth quarter of 2012.

The annual gap narrowed to about $10.1 billion, or 4.8 percent of gross domestic product, from $10.5 billion, or 5 percent, three months earlier, about matching the forecasts in a Reuters survey.

Prices of dairy products rose in Fonterra's latest GlobalDairyTrade auction this morning, ending three straight declines as prices rose for skim and whole milk powder and underpinning support for the kiwi ahead of tomorrow's GDP result.

Data tomorrow is expected to show New Zealand's economy grew 0.6 percent in the three months ended March 31, according to a Reuters survey of economists.

The kiwi gained to 84.16 Australian cents at 5pm in Wellington from 83.87 yesterday after Australia's central bank, which has cut borrowing costs by 2 percentage points over the past 20 months, signalled it may reduce its benchmark rate more as it tries to spur industries such as construction to pick up pace as mining investment peaks.

The kiwi rose to 76.09 yen from 75.72 yen yesterday and gained to 51.09 British pence from 50.87 pence. It slid to 59.65 euro cents from 59.83 cents yesterday.

(BusinessDesk)