Dollar jumps above 70USc after Fed lowers US growth outlook

The New Zealand dollar jumped, rising briefly above 70 US cents, after the US Federal Reserve pulled back its projections for future interest rate rises and lowered its growth estimate for the world's biggest economy this year.

The kiwi rose as high as 70.10 US cents from 69.26 cents immediately before the Fed statement at 6am New Zealand time, and was trading at 69.94 cents at 8am from 69.66 cents at 5pm yesterday. The trade-weighted index slipped to 72.67 from 72.73 yesterday.

The New Zealand dollar weakened leading up to the Fed statement, touching a fresh five-year low of 68.74 US cents, as traders anticipated the Fed would reinforce its expectations for future interest rate hikes in the US. However, while the Fed maintained its projection for the benchmark interest rate to gain this year to 0.625 percent, implying two quarter-point rate rises by the end of the year, it lowered its forecast for 2016 to 1.625 percent from 1.875 percent, and for 2017 to 2.875 percent from 3.125 percent. The central bank also revised down its estimate for 2015 growth to a range of 1.8 percent to 2 percent, from a previous expectation of 2.3 percent to 2.7 percent.

"The US dollar broadly sold off after the Fed delivered a cautious message," ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note. "While a 2015 hike is likely, the Fed certainty has reduced."

ANZ expects the kiwi to trade between 69.40 US cents and 70.40 cents today.

The local focus today will be on first quarter GDP data, scheduled for release at 10.45am. The economy probably expanded 0.6 percent in the first quarter from the previous quarter, for annual average growth of 3.3 percent, according to a Reuters poll of economists.

The Reserve Bank also releases data on household balance sheets at 3pm.

The New Zealand dollar fell to 61.51 euro cents from 61.87 cents yesterday amid continued uncertainty about Greek debt negotiations.

The local currency slipped to 90.09 Australian cents from 90.17 cents yesterday, fell to 44.06 British pence from 44.53 pence and advanced to 86.10 yen from 86 yen.

(BusinessDesk)