Kiwi hits two-week high as Fed minutes fuel QE3 expectations

BUSINESSDESK: The New Zealand dollar rose to a two-week high in local trading, extending its rally after minutes for the last Federal Reserve policymakers' meeting fuelled expectations the central bank will embark on a third round of money printing to revive the world's biggest economy.

The kiwi rose as high as 81.85 US cents, trading at 81.71 cents at 5pm in Wellington from 81.32 cents at 8am and 80.84 cents yesterday. The trade-weighted index advanced to 73.16 from 72.73 yesterday.

The Dollar Index, a measure of the greenback against a basket of currencies, dropped 0.7% to a two-month low 81.42 as traders ditched the world's reserve currency amid heightened expectations the Fed will inject more stimulus in the immediate future.

Minutes of the Federal Open Market Committee's July 31 to August 1 meeting said many committee members judged more quantitative easing was "warranted fairly soon" unless the US economy shows signs of "substantial and sustainable" improvement.

"You can't fight the Fed," said Mike Jones, currency strategist at Bank of New Zealand in Wellington. "The kiwi had a head of steam up all day."

New Zealand's currency may return to the 81 US cents to 84 cents range it traded in during February and March this year with the prospect of more asset purchases by the Fed, which will debt the greenback's fortunes, he says.

The Fed minutes may have stolen the limelight from next week's central bank summit in Jackson Hole, Wyoming, leaving chairman Ben Bernanke little more to add, Mr Jones says.

Traders ignored a weak Chinese manufacturing indicator, with the HSBC purchasing manager's index preliminary reading falling to 47.8 this month from July's 49.3.

If that is confirmed, it would be the weakest level since November and may signal the world's second-biggest economy is in for a harder landing than expected.

"China's PMI was genuinely weak and had very few redeeming features as growth is still stuttering," Mr Jones says. The kiwi dollar strengthened to 5.1876 yuan from 5.1682 yuan yesterday.

German Chancellor Angela Merkel and French President Francois Hollande will meet with Greek Prime Minister Antonis Samaras on Friday to discuss the Mediterranean nation's 130 billion euro bailout ahead of next month's official update with the European Central Bank, International Monetary Fund and European Commission.

Mr Samaras is seeking a two-year extension to help bed in the harsh spending cuts set as conditions of the lifeline.

The kiwi climbed to 65.13 euro cents from 64.87 cents yesterday and was little changed at 64.14 Japanese yen from 64.10 yen. It rose to 77.67 Australian cents yesterday from 77.35 cents and increased to 51.40 British pence from 51.22 pence.