Kiwi pares gain as investors await central bank support

BUSINESSDESK: The New Zealand dollar pared gains in local trading as investors awaited central bank action this week, when the Federal Reserve and European Central Bank are scheduled to review their monetary policies.

The kiwi fell to 80.75 US cents at 5pm from a three-month high 81.05 cents at 8am, from 80.88 cents on Friday in New York. The trade-weighted index was little changed at 72.80 from 72.91 last week.

Traders are banking on the ECB taking firmer action to shore up the region's single currency after Germany and France joined their party in affirming their support for the euro.

ECB president Mario Draghi indicated the central bank will buy government bonds to improve efforts to allay the region's sovereign debt woes when the bank meets on Thursday in Frankfurt.

"People have chosen to run with an optimistic view with the ECB about to do a lot more bond buying," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney.

"Given the run up in the kiwi and Aussie over the last five days or so, we expect there's been a lot of good stuff priced in" to the currencies already, he said, referring to the trans-Tasman currencies.

Mr Tennent-Brown said the US Fed may review its commitment to keeping the Federal Funds rate near zero percent until 2014, pushing out the timeframe even further. The Fed begins its two-day policy meeting on Wednesday in Washington DC.

Markets will keep tabs on US employment figures out at the end of the week, with the Fed putting greater emphasis on cutting its level of joblessness.

Traders largely ignored New Zealand's June building consents, which showed the number of permits issued rose for the first month in three. That was due to an increase in Canterbury-earthquake related consents and a jump in issuance of apartment and retirement village permits.

The government is set to unveil its plan to rebuild Christchurch city's central business district on Monday evening in New Zealand, which will help spur the reconstruction effort.

The kiwi increased to 65.73 euro cents from 65.64 cents last week, and was little changed at 51.37 pence from 51.48 pence. It traded at 77.15 Australian cents from 77.09 cents at the close of trading in New York and fell to 63.27 yen from 63.42 yen.