Kiwi drops on the week as QE curtailment boosts greenback

The New Zealand dollar is heading for a 2.1 percent weekly fall against the greenback as investors flock to the US currency on growing expectations the Federal Reserve will start unwinding its money printing programme this year.

The kiwi sank to 81.10 US cents at 5pm in Wellington from 81.58 cents this morning, down from 82.48 cents yesterday. The trade-weighted index declined to 77.40 from 77.60 and is heading for a 0.2 percent weekly fall.

A BusinessDesk survey of five strategists on Monday predicted the kiwi would trade between 81.50 US cents to 84 US cents this week, with a downside bias.

The Dollar Index, a measure of the greenback against a basket of currencies, is heading for a 0.9 percent weekly gain to 83.89 as investors prepare for the Fed to unwind its quantitative easing programme, where it buys $US85 billion a month in treasuries and mortgage-backed securities.

Traders will be looking for Fed chairman Ben Bernanke's speech entitled Economic Prospects for the Long Run on Saturday in Massachusetts for any fresh hints on whether the central bank will back out of printing money.

"The price action we're seeing is giving us insight to where the market is positioned. It's been heavily positioned against the US dollar and now we're seeing a bit of reversal," says Dan Bell, currency strategist at HiFX in Auckland. "The kiwi and Aussie are under-performing relative to our other peers out there."

Mr Bell expects the local currency will head towards 75 US cents in the coming months as investors continue to back the US recovery.

New Zealand consumer confidence continued to improve this month, according to an ANZ-Roy Morgan survey published today, with rising house prices and an improving jobs market underpinning the more optimistic outlook.

Government figures showed produce input prices, a measure of wholesale inflation, rose 0.8 percent in the first three months of the year, and output prices also increased at the same pace.

The kiwi dropped to 83.15 Australian cents from 83.44 cents at 5pm yesterday and fell to 82.98 yen from 84.30 yen. It slid to 63.04 euro cents from 64.07 cents yesterday and sank to 53.17 British pence from 54.16 pence.

(BusinessDesk)