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NZ dollar weakens as Fed keeps policy on hold; ECB looms

NZ dollar weakens as Fed keeps policy on hold; ECB is next hurdle

By Jonathan Underhill

Aug. 2 (BusinessDesk) - The New Zealand dollar fell after the Federal Reserve kept US monetary policy unchanged even while noting the world’s biggest economy may need help. The greenback was broadly stronger after the statement.

The kiwi dollar fell to 80.87 US cents from 81.04 cents at 5pm in Wellington yesterday. The trade-weighted index was little changed at 72.97.

The Fed said US economic activity had "decelerated somewhat" since its policymakers last met but failed to provide fresh clues on potential action to revive growth, saying it expects growth to “remain moderate” in coming quarters. Traders are now awaiting the European Central Bank’s statement tonight, amid speculation it may dust off its bond purchase programme and signal more aid to banks.

The Fed statement “constituted disappointed for the market,” said Imre Speizer, market strategist at Westpac Banking Corp. “At a minimum, people were expecting the period of low interest rates to be extended from late 2014 to 2015.”

Speizer said the kiwi may trade in a range of 80.15 US cents to “the low 81s” today with scope for further declines as Asian markets open. “But I don’t think it will be a complete rout before the ECB.”

The New Zealand dollar didn’t react much after prices rose 3.5 percent in the latest GlobalDairyTrade auction of dairy products, only the fourth gain this year. Further clues to prices of New Zealand’s major export commodities are due today with the release of the ANZ Commodity Price Index.

The kiwi dollar edged up to 66.05 euro cents from 65.94 cents ahead of the ECB and as Spain prepares to sell more bonds tonight.

The local currency rose to 52.01 British pence from 51.75 pence and rose to 63.35 yen from 63.23 yen. The kiwi recently traded at 77.23 Australian cents from 77.26 cents.


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