Dollar little changed after Fed as traders await RBNZ decision

The New Zealand dollar was little changed after the Federal Reserve reiterated that it would remain "patient" in deciding when to raise interest rates, while noting inflation may decline further. The local currency is weaker heading into the Reserve Bank of New Zealand's interest rate decision this morning where it is expected to drop its tightening bias.

The kiwi slipped to 74.22 US cents at 8:30am in Wellington from 74.61 cents when the Fed statement was released at 8am and 74.52 cents at 5pm yesterday. The trade-weighted index was at 76.62 at 8:30am from 76.88 at 8am and 76.79 yesterday.

The Fed said the US economy is on track despite turmoil in other markets around the world, keeping intact expectations that it will raise interest rates from the middle of this year. While the Fed acknowledged that inflation had declined, it said it should increase over the medium term as the labour market improves and temporary effects of low energy prices fade.

"It's largely on expectations," said Imre Speizer, senior market strategist at Westpac Banking Corp in New Zealand. "They retained the key word which was 'patient'. Patient for them means they are going to be on hold for at least the next two meetings. The main language was retained but they are noting that inflation is going to fall further in the near term, but they are still seeing the fall in inflation as transitory. The market is taking a view that they are going to sit on their hands and there is nothing to do here and now while inflation is still falling."

The kiwi is weaker heading into the Reserve Bank of New Zealand decision at 9am, Speizer said.

Later this morning, New Zealand trade data for December is published.

The New Zealand dollar was at 93.39 Australian cents at 8:30am, from 93.51 cents at 8am and 93.25 cents yesterday. The local currency was at 65.52 euro cents at 8:30am, from 65.72 cents at 8am and 65.71 cents yesterday.

The kiwi was at 48.92 British pence at 8:30am from 49.13 pence at 8am, unchanged from yesterday. The New Zealand dollar was at 87.26 yen at 8:30am from 87.86 yen at 8am and 88.03 yen yesterday

(BusinessDesk)