NZ dollar declines after Bernanke says Fed may taper QE on signs of sustained improvement
By Tina Morrison
May 23 (BusinessDesk) - The New Zealand dollar fell after US Federal Reserve Chairman Ben Bernanke said the central bank may taper monthly bond purchases at its next few meetings if it’s confident of sustained gains in the economy.
The kiwi dropped to 80.64 US cents from 81.47 cents at 5pm in Wellington yesterday. The trade-weighted index fell to 76.38 from 76.82 yesterday.
The Dollar Index, a measure of the greenback against a basket of currencies, reached its highest in almost three years as investors anticipate the Fed will start unwinding its US$85 billion a month asset purchase programme. Traders are more upbeat about the prospects of the Fed tapering off QE this year as the world's biggest economy shows signs of improvement.
"The US dollar is strengthening and that is weighing heavily on the kiwi dollar," said Michael Johnston, a senior trader at HiFX. "If they scale back bond purchases it is a sign they are more confident about the economic recovery."
Bernanke told Congress the central bank could slow its money printing programme in the next few meetings and is continuing to assess prospects for the job market.
“If we see continued improvement, and we have confidence that that is going to be sustained, in the next few meetings we could take a step down in our pace of purchases,” he said.
Still, the U.S. economy remains hampered by high unemployment and government spending cuts, and tightening policy too soon would endanger the recovery, Bernanke said.
Steadily improving data from the US will likely continue to weigh on the kiwi although it may bounce higher should some reports fail to meet expectations, said HiFX's Johnston.
The kiwi has got further to fall," Johnston said. "We should see sub-80 before the end of the year."
Minutes released by the Fed of its last policy meeting showed many officials said more labour-market progress was needed before they slow asset purchases.
Traders will also be keeping tabs on the release today of the HSBC flash purchasing managers’ index, an early indicator of China’s manufacturing, to get a steer on how the world’s second biggest economy is faring.
The local currency was little changed at 83.22 Australian cents, from 83.29 yesterday. It dropped to 82.92 yen from 83.56 yen yesterday and fell to 62.74 euro cents from 63.06 cents. The kiwi weakened to 53.61 British pence from 53.78 pence yesterday.