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NZ dollar holds above 81 US cts amid building case for QE3

NZ dollar holds above 81 US cents amid expectations for looser monetary policy

By Hannah Lynch

Sept 10 (BusinessDesk) - The New Zealand dollar held above 81 US cents after by weaker-than-expected data out of the world's two largest economies, China and the US, stokes expectations their respective central banks will loosen monetary policy further.

The New Zealand dollar traded at 81.03 US cents at 8am in Wellington. That's down from 81.21 cents at the close of trading in New York and up from 80.26 cents at 5pm on Friday in New Zealand. The trade weighted edged down to 72.32 from 72.40.

Chinese industrial output grew at its slowest pace in three years, while retail sales rose in line with expectations, while producer prices fell for a sixth month, according to official figures. In the US, the world's largest economy, non-farm payrolls showed employers added 96,000 jobs in August, down from a 141,000 gain in July.

That's put pressure on the People's Bank of China to cut interest rates, and for the US Federal Reserve to initiate another round of quantitative easing in a bid to boost growth.

"If we start seeing central banks coming in and doing easing that mean they are devaluing their currencies and the kiwi will go higher," said Stuart Ive, currency strategist at HiFX. "The data had led to speculation the Fed will go to some form of quantitative easing at their meeting this week."

The median forecast from 59 economists polled by Reuters gave a 60 percent chance Fed Chairman Ben Bernanke will announce QE3 on Thursday at the conclusion of the two-day FOMC meeting this week.

Ive predicted the kiwi will finish the week higher, trading in a range of 80.10 US cents to 82.20 cents.

In New Zealand the economic survey of manufacturing for the June quarter from Statistics New Zealand is set for release today. That's followed by electronic card transactions for August on Tuesday and the accommodation survey for July on Wednesday.

The main focus for traders this week will be Reserve Bank Governor Alan Bollard's final monetary policy statement on Thursday, where he is expected to keep the official cash rate at 2.5 percent.

The New Zealand dollar fell to 63.25 euro cents from 63.36 cents at the close of trading in New York. The kiwi declined to 50.57 British pence from 50.67 pence and slipped to 63.37 yen from 63.55 yen. It was little changed at 78.17 Australian cents from 78.14 cents.


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