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NZ dollar pares gain ahead of Fed meeting

The New Zealand dollar pared overnight gains in local trading as investors look to the outcome, tomorrow morning, local time, of the last US Federal Reserve policy meeting of the year, which may provide guidance on the US central bank's plans to start lifting American interest rates.

The kiwi fell to 77.36 US cents at 5pm in Wellington from 77.85 cents at 8am, little changed from 77.45 cents yesterday. The trade-weighted index fell to 77.68 in its first day under an expanded basked of currencies, from 77.90 yesterday.

Investors have been rallying to the greenback through the latter half of this year as an improving US economy stokes expectations the Fed will move away from the zero interest rate policy it's been running since the global financial crisis. The Federal Open Market Committee reviews policy on Wednesday in Washington, and traders anticipate chair Janet Yellen will give a clearer outline on the Fed's plans to start raising rates next year and what she sees as the major risks facing the US.

"The market's looking for a pretty quiet end to the month once we get through the FOMC. There's a little bit of GDP data and that might be it," said Mark Johnson, senior dealer foreign exchange at OMF in Wellington. He said the recent unwinding of long US dollar positions doesn't mean the greenback's appreciation is over.

"The question is 'what is Yellen going to say tomorrow?' Is she concerned the US dollar is strengthening too quickly?"

The kiwi rose during the Northern Hemisphere trading session as financial markets were increasingly volatile after Russia's central bank hiked interest rates to 17 percent from 10.5 percent in a bid to shore up its plunging ruble, and largely ignored the GlobalDairyTrade auction, which showed a bounce in headline dairy prices though longer-dated whole milk powder contracts fell.

New Zealand government figures today showed the nation's current account deficit was at a six-year high of $2.5 billion in the September quarter, with falling exports and big one-off imports underpinning the shortfall. Investors will be watching for New Zealand's third quarter gross domestic product figures tomorrow. The September year current account deficit was $6.1 billion, or 2.6 percent of GDP.

The local currency fell to 90.44 yen at 5pm in Wellington from 90.91 yen yesterday, and rose to 94.78 Australian cents from 94.07 cents. It fell to 61.89 euro cents from 62.15 cents yesterday, and declined to 49.15 British pence from 49.47 pence. It dropped to 4.7897 Chinese yuan, which has become an important component of the new TWI, from 4.7987 yuan yesterday.