The New Zealand dollar jumped more than one US cent after the Federal Reserve was more cautious than expected about a revival in the US economy and the outlook for interest rate rises.
The kiwi rose as high as 75.22 US cents, from 73.75 cents ahead of the Fed's statement released at 7am New Zealand time. The local currency was trading at 74.34 US cents at 8am in Wellington, from 73.03 cents at 5pm yesterday. The trade-weighted index increased to 78.18 from 77.22 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, dropped to its lowest in more than a week after the Federal Open Market Committee lowered its outlook for growth, inflation and interest rates, offsetting the impact of removing the key word 'patient' from its statement which signals it is prepared to raise rates based on future economic data. The more dovish statement prompted investors to pull back their bets predicting the US dollar would rise, known as a 'long' position.
"This was a more cautious missive than the market had expected, and should see the excessive US dollar long positions, built over the past few weeks, pared even further," Bank of New Zealand currency strategist Raiko Shareef said in a note. "A June lift-off in rates certainly remains a possibility, but it seems more unlikely given the recent slowdown in US economic data, which the Fed acknowledged today."
In New Zealand today, all eyes will be on fourth quarter economic growth data, scheduled for release at 10:45am. The report is expected to show New Zealand's economy expanded at a 0.7 percent pace in the fourth quarter compared with the third quarter, resulting in an annual average growth rate of 3.2 percent, according to a Reuters poll.
The New Zealand dollar touched a two-month high of 50.37 British pence and was trading at 50.02 pence at 8am from 49.46 pence yesterday. The British pound weakened after the Bank of England's minutes to its last meeting showed officials were concerned the nation's currency could strengthen further, keeping inflation lower for longer, which could delay interest rate hikes. A labour report showing UK wage growth slowed also weighed on the British pound.
The kiwi rose to 96.27 Australian cents from 95.75 cents yesterday, jumped to 89.70 yen from 88.61 yen and increased to 69.23 euro cents from 68.84 cents.