Kiwi dollar falls after Fed statement

The New Zealand dollar fell away sharply from around 6.30am today, with the decline coming soon after a statement from the United States Federal Reserve.

The Fed upgraded its assessment of the US economy, saying activity had picked up after a severe downturn, but renewed its pledge to keep rates exceptionally low for an extended period to support a fragile recovery.

The Fed also said it would slow purchases of mortgage debt to extend that programme's life until the end of March, in a step toward a measured withdrawal of its extraordinary support for the economy during the downturn.

BNZ Capital strategist Mike Jones said a late spike in risk aversion following a sell-off in US equities boosted safe haven demand for the US dollar, and helped cap further gains in the NZ dollar against the greenback.

In the 90 minutes to 8am the kiwi dropped from around US72.80c to the US72c level, near where it was before data indicating an end to recession caused a rapid rise to a brief peak a little above US73c yesterday morning.

The peak, the highest since August 2008, came after Statistics New Zealand said economic activity expanded 0.1 per cent in the June quarter, following five quarters of contraction.

Rapid declines in the hours before the local open today were also recorded against the Japanese and European currencies.

By 8am the NZ dollar was buying 0.4883 euro from 0.4908 at 5.15pm and was down to 65.78 yen from 65.98 around yesterday's local close.

Against the Australian dollar, the kiwi edged lower to A82.77c at 8am from A82.90c at 5.15pm. The trade weighted index dropped to 65.52 from 65.88.

- NZPA