Dollar heads for 1.5% weekly gain after Fed's more cautious outlook on US economy

The New Zealand dollar is headed for a 1.5 percent weekly gain against the greenback after the Federal Reserve gave a more cautious assessment of the US economy, prompting traders to pull back their bets that the US dollar would gain.

The kiwi rose to 74.31 US cents at 5pm from 73.64 cents at 8am on Monday. A BusinessDesk survey of currency traders and strategists on Monday picked the kiwi to trade between 71.30 US cents and 75.20 cents this week. Six expected the kiwi to decline, while two said it could rise and three bet it would remain broadly unchanged. The trade-weighted index advanced to 78.21 from 77.95 on Monday.

The US dollar had surged to a 12-year high ahead of the Federal Reserve meeting this week where the US central bank was expected to remove the word 'patient' from its statement, paving the way for interest rate hikes at future meetings. However the greenback suffered a broad-based decline after the Fed also lowered its outlook for growth, inflation and interest rates, and said it wasn't 'impatient'.

"Kiwi fundamentals have mattered very little this week," said Chris Weston, chief market strategist at IG Markets in Australia. "When you see such build up of expectations around something that's so substantial as the Federal Reserve raising rates, they are the lynchpin of all parts of the capital markets let alone the currency markets, and the volatility we have seen this week has been fairly breathtaking as people have to alter their investment cases.

"Everyone had it pencilled in that we were going to raise rates between June and September and the Fed have thrown a massive element of doubt that there is such a specific timetable to that," he said. "Market expectations have been blown out of the water and we are left now very much with a market that just doesn't know what's going to happen and that uncertainty has created major moves and major volatility. The kiwi did very nicely."

Next week, the focus will be on Fonterra Cooperative Group's first-half earnings, where the nation's largest dairy exporter may give an update on its forecast payout. Statistics New Zealand is also scheduled to release the latest merchandise trade data.

The New Zealand dollar was little changed at 96.80 Australian cents from 96.81 cents this morning, rose to 69.55 euro cents from 69.35 cents, gained to 50.31 British pence from 50.13 pence and advanced to 89.71 yen from 89.25 yen.

(BusinessDesk)