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NZ dollar falls after Fed starts to slow its money printing programme

Paul McBeth
Wed, 11 Jul 2018

The New Zealand dollar fell after the Federal Reserve trimmed its asset purchase programme in the face of a recovering US economy, in the first step towards ending stimulus which has been debasing the greenback.

The kiwi fell to 81.80 US cents at 5pm in Wellington from 82.47 cents at 8:10am and 82.50 cents yesterday. The trade-weighted index declined to 77.51 from 77.78 yesterday.

The Fed will cut its monthly purchases of bonds and mortgage backed securities by US$10 billion to US$75 billion as the US labour market continues to improve, its first move away from a massive stimulus that's seen interest rates cut to near zero in response to the 2008 global financial crisis and more than four years of quantitative easing. About a third of the market was picking the Fed to start scaling back its asset purchases at today's meeting.

"If you get better data, tapering is going to be stronger and harder," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. "The over-riding factor is that the US dollar should strengthen."

The Fed move overshadowed local gross domestic product figures showing faster economic growth than expected in the third quarter of 1.4 percent as the dairy sector recovered from last summer's drought.

"The currency was lower despite the good GDP," Kelleher said, who predicts the kiwi will head towards 80 US cents.

Government figures also showed New Zealand recorded its first trade surplus for a month of November since 1991 on increased Chinese demand for dairy products. Some of the data was inadvertently released on Statistics New Zealand's website, prompting the early publishing time.

The New Zealand dollar was little changed at 59.89 euro cents at 5pm in Wellington from 59.90 cents yesterday, and sank to 49.96 British pence from 50.65 pence. The local currency traded at 85.03 yen from 84.98 yen yesterday and was almost unchanged at 91.61 Australian cents from 92.62 cents.


Paul McBeth
Wed, 11 Jul 2018
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NZ dollar falls after Fed starts to slow its money printing programme