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NZ dollar firms as Fed leaves door open to rate cuts

By Rebecca Howard

June 20 (BusinessDesk) - The New Zealand dollar got a lift when the US Federal Reserve signaled rate cuts ahead if the economic outlook weakens.

The kiwi was trading at 65.39 US cents at 8am in Wellington from 65.26 at 5 pm. The trade-weighted index was at 71.88 from 71.91.

The Federal Reserve held the federal funds rate unchanged between 2.25 percent and 2.50 percent as expected but acknowledged that "uncertainties to the outlook have increased." It also removed the reference to remaining "patient" and now said it will "closely monitor the implications of incoming information."

Fed chairman Jerome Powell told a press conference that many on the open market committee see a strengthening case to cut rates, according to Dow Jones Newswires. Forecasts show that eight of 17 committee members are expecting a cut by year-end, eight see no change, and one forecast a hike, ANZ FX/Rates strategist Sandeep Parekh said.

"Kiwi squeezed higher as the FOMC became increasingly dovish at this morning’s FOMC meeting. With this event now out of the way and the market largely satisfied, markets will be looking ahead to NZ Q1 GDP to see if it gives any clues to which way the RBNZ may lean at next week’s OCR review," he said.

Economists polled by Bloomberg predict gross domestic product expanded 0.6 percent in the three months ended March 31 and 2.4 percent from a year earlier. The Reserve Bank is forecasting quarterly growth of 0.4 percent.

The kiwi was trading at 95.00 Australian cents versus 94.56 late yesterday. Markets will be watching for a speech on the "labour market and spare capacity" from Reserve Bank of Australia governor Philip Lowe this afternoon, in particular after the RBA minutes suggested another cut may be imminent, Parekh said.

The kiwi was at 51.66 British pence from 51.96, at 58.19 euro cents from 58.32, at 70.63 yen from 70.71, and at 4.5096 Chinese yuan from 4.5064



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