Kiwi climbs as Moody's warns on US credit rating

BUSINESSDESK: The New Zealand dollar climbed to a month-high against the greenback ahead of the Federal Reserve's two-day policy meeting and after Moody's Investors Services threatened to strip the world's largest economy of its AAA credit rating.

The kiwi rose to 81.86 US cents at 8am in Wellington, the highest since August 6, from 81 cents at 5pm yesterday. The trade weighted index increased to 72.78 from 72.36.

Moody's warned it may cut the US credit rating one notice to Aa1 if the federal government fails to rein in national debt. Standard & Poor's stripped the world's biggest economy of its AAA-rating in August last year after negotiations to raise its debt ceiling stalled.

That comes as the Federal Open Market Committee meets to review monetary policy in the US, and is tipped to announce a third round of quantitative easing and push out the timeframe for near-zero interest rates to 2015.

"It is fuel to the fire on expectations for further quantitative easing," says Stuart Ive, currency strategist at HiFX. "There is a strong possibility the Fed will do something. We'll see the kiwi go up against the US on that basis."

The kiwi "does appear to be trying to push its way up" with resistance coming in around 82.10 US cents and support at 81 cents, he says.

The New Zealand dollar also advanced after ratings agency Fitch Rating affirmed the country's AA rating and stable outlook, citing its "strong track record of monetary policy management, product fiscal management, high level of economic development and a strong governance and fiscal environment".

"Not only did Fitch affirm the rating but they expect a boost from the Christchurch rebuild," Mr Ive says. "In times of global downturn New Zealand is still jugging away."

The New Zealand dollar was little changed at 63.54 euro cents from 63.42 cents ahead of Germany's Federal Constitutional Court ruling on the nation's participation in 500 billion euro European Stability Mechanism, a fund set up to help eurozone member states lower their borrowing costs by providing cheap loans.

New Zealand's accommodation survey for July will be released by Statistics NZ this morning.

The kiwi was little changed at 78.31 Australian cents from 78.26 cents yesterday. It rose to 63.51 yen from 63.35 yen and advanced to 50.82 British pence from 50.59 pence.