WELLINGTON: The New Zealand dollar bounced back from three-year low as traders look ahead to the US Federal Reserve’s policy meeting and a announcement from the Reserve Bank to establish support for the high yielding currency.
The kiwi traded at 74.26 US cents at about 5pm in Wellington, little changed from on Monday, having earlier touched 73.94 cents, its lowest level since November 2011.
The trade-weighted index declined to 76.75 from 76.92 on Monday.
The US Dollar Index is near its highest levels in more than a decade and sentiment for the greenback will rise further if the Federal Open Market Committee signals scope to raise interest rates from near zero this year.
The US dollar has gained amid signs the world’s biggest economy is picking up, while the kiwi will face the twin forces of the FOMC and the Reserve Bank, which may flag little reason to hike interest rates with tame inflation.
The kiwi ‘is in a little bit of a holding pattern until the back end of the week,’ said Alex Hill, head of corporate FX at NZ Forex.
‘We’ll get to see how much they (the Fed) can hold off raising interest rates. That’s the key short-term driver.’
Meantime, in New Zealand, inflation is below the central bank’s estimates and should the Reserve Bank refer to the need for a rate hike being much further out or even hint at a cut, ‘then the kiwi is in for a rough ride,’ Mr Hill said.
‘It’s one of the highest yielding currencies in the world. It creates such a gulf in yield with other currencies.’
The New Zealand dollar fell to 93.55 Australian cents from 94.24 cents on Monday and to 65.10 euro cents from 66.46 cents, but rose to 87.79 yen from 87.33 yen.
