Kiwi dips in volatile trading as vibes American improve

The New Zealand dollar declined in volatile trading as improving US economic data before this week's Federal Reserve meeting spurred some investors to increase their bets that the central bank may start to reduce stimulus in the world's largest economy.

The kiwi slid to 79.90 US cents from 80.80 cents at 5pm yesterday. In the past 24 hours, it has ranged from 79.62 US cents to 80.99 cents. The trade-weighted index slipped to 73.99 from 74.78 yesterday.

Reports from the US showing manufacturing in the New York area climbed to the highest reading since March and US homebuilder confidence surged to a seven-year high heightened expectations that the central bank may reduce stimulus which has been holding down the value of the greenback.

Traders are focused on the outcome of the Federal Reserve Open Market Committee's two-day meeting starting today after Fed chairman Ben Bernanke last month suggested the central bank might reduce the pace of its $US85 billion monthly bond-buying programme.

"The US dollar strengthened in another bout of volatility as markets become increasingly skittish as the FOMC meeting approaches," Bancorp Treasury client adviser Peter Cavanaugh says in a note. "The FOMC meeting has taken on huge significance since Bernanke said in May that the Fed may decide to pare back its bond buying in the next few meetings if the economy gains momentum."

In New Zealand, traders are eyeing a slew of positive economic indicators which are stoking expectations for growth. In the past few days, reports have shown strong manufacturing and services activity and a pick-up in consumer confidence.

Tomorrow, the government statistician is scheduled to release balance of payments figures for the first quarter. That is expected to show New Zealand's current account deficit narrowed to $600 million in the first quarter from a gap of $3.26 billion three months earlier, according to a Reuters survey.

On Thursday, gross domestic product figures for the first quarter are expected to show the economy grew at a slower 0.6 percent in the first three months of the year, after expanding at the fastest clip in three years in the fourth quarter of 2012, according to another Reuters survey.

The kiwi dropped to 83.61 Australian cents from 84.04 cents yesterday as traders await the release of minutes from the Reserve Bank of Australia's last meeting for any indications of further rate cuts.

It declined to 75.46 yen from 76.51 yen, slid to 59.74 euro cents from 60.65 cents and edged lower to 50.82 British pence from 51.47 pence.

(BusinessDesk)