Kiwi heads for 3.3% weekly fall after Fed's QE signal

The New Zealand dollar is heading for a 3.3 percent weekly slide against the greenback after the US Federal Reserve offered more detail about its intention to pull back on its massive stimulus programme as early as this year.

The kiwi fell to 77.71 US cents at 5pm in Wellington from 77.50 at 8am and 78.54 cents yesterday.

The local currency started the week at 80.36 US cents and was seen as trading between 78.50 cents and 82.50 cents this week, with a positive bias, according to a BusinessDesk survey of 10 traders and strategists on Monday.

Fed chairman Ben Bernanke said yesterday the bank's $US85 billion a month of bond buying will start to wind down this year and be completed in 2014.

The Federal Open Market Committee said at the conclusion of a two-day meeting in Washington that risks to the US economy have decreased, as they lowered forecasts for unemployment and inflation this year.

"The market is trying to go into normalisation - they're ahead of the game as there's still central banks intervening in these markets," says Stuart Ive, senior client adviser at OM Financial in Wellington. "We should see a bit of consolidation in the kiwi after coming off its lows."

The kiwi may have settled down to a range of between 77 US cents and 79 cents as investors digest the Fed meeting, which did not include detail of how big the wind-down may be.

The trade-weighted index sank to 73.13 from 73.74 yesterday and is heading for a 1.6 percent weekly drop. The Reserve Bank's most recent quarterly projections for the TWI did not see the currency at such low levels until mid-2015.

Chinese manufacturing figures also weighed on the kiwi, along with an increase in interbank lending rates on signs the People's Bank of China is tightening credit and weaker than expected first-quarter growth in the local economy.

The kiwi fell to 84.34 Australian cents from 84.87 cents yesterday and dropped to 75.87 yen from 76.13 yen. It slid to 58.71 euro cents from 59.21 cents yesterday and dropped to 50.11 British pence from 50.54 pence.

(BusinessDesk)