Dollar retreats from 3-year low as FOMC, RBNZ awaited

The New Zealand dollar rose from a three-year low as traders look ahead to the US Federal Reserve's policy meeting and a statement from the Reserve Bank to determine support for one of the world's highest yielding major currencies.

The kiwi traded at 74.26 US cents at about 5pm in Wellington, little changed from yesterday, having earlier touched 73.94 cents, its lowest level since November 2011.The trade-weighted index declined to 76.75 from 76.92 yesterday.

The US Dollar Index is near its highest levels in more than a decade and sentiment for the greenback will list 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," 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 yesterday. The kiwi weakened to 65.10 euro cents from 66.46 cents and dropped to 49.20 British pence from 49.53 pence. It rose to 87.79 yen from 87.33 yen.

(BusinessDesk)

Paul McBeth
Tue, 27 Jan 2015

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Dollar retreats from 3-year low as FOMC, RBNZ awaited