Published: Sam, Septembre 23, 2017
Financer | By Gilbert Hennequin

NZ dollar rangebound after Fed signals unwinding

NZ dollar rangebound after Fed signals unwinding

The US central bank, as anticipated, also said it would begin in October to reduce its approximately $4.2 trillion in holdings of US Treasury bonds and mortgage-backed securities acquired in the years after the 2008 financial crisis.

The U.S. dollar is lower and continues to underperform the news, including increasing prospects for a fed funds rate hike in December.

"If you think the Reserve Bank's on hold and our rates are at 1.75 percent and by the middle of next year, or the end of next year the Fed rate is going to be 2.25 percent then where are you going to be parking your money?", said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

Analysts at UniCredit agreed, saying that the dollar was rising because some market participants "may have been expecting a more cautious stance that did not materialise".

Markets are pricing in a 58-percent probability of the Fed raising rates in December, according to the CME Group's FedWatch tool.

Shanghai was also off 0.1 per cent, Singapore eased 0.3 per cent and Seoul retreated 0.2 per cent. Wellington slipped 0.5 per cent but Taipei was up 0.4 per cent and Manila put on 0.6 per cent.

"The dollar is under pressure ahead of the Fed", said ABN AMRO analyst Georgette Boele.

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The dollar surged in New York to 112.15 yen from 111.50 yen earlier in Asia, while the euro sank from around $1.20 to below $1.19.

Canada has already hiked interest rates twice in recent months, while the Bank of England shocked many last week by flagging its own coming increases.

As of 1:30 p.m. EST, gold was trading at $1,307.18 per ounce, up 0.2 percent from a low of $1,304.10 touched the previous day. Still, the greenback's gains against its Japanese counterpart were seen to be relatively limited.

Gold prices fell sharply on Thursday as traders continued to unwind their bullish bets on the precious metal in the wake of the Federal Reserve's policy statement which sparked expectations of a year-end rate. "That's holding the kiwi-Aussie cross up a bit", he said.

The euro's appreciation reflects a stronger euro zone economy, supporting calls for the European Central Bank to move away from its unprecedented stimulus policy, ECB rate-setter Klaas Knot said on Wednesday. A gain of almost 400 points saw the benchmark index soar past the 20,000-point threshold, marking the highest level since August 2015.

The US dollar index, which tracks the greenback against six major currencies, was modestly lower before turning higher on the Fed's forecast for one more rate hike in 2017.

The Fed raised rates by a quarter point in March and June and its current target range is now at one to 1.25 per cent. Brent crude, used to price international oils, gained 14 cents to $56.15 a barrel in London.

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