The New Zealand dollar advanced as investors bet the US Federal Reserve will continue to pull back on its quantitative easing programme even as chair Janet Yellen signalled the world's largest economy will need support for some time.
The kiwi rose to 86.73 US cents at 8am in Wellington, from 86.55 cents at 5pm yesterday. The trade-weighted index edged up to 80.91 from 80.86 yesterday.
Yellen signalled considerable slack is still present in the US economy and the labour market, with most Fed officials seeing the equilibrium level of unemployment between 5.2 per cent and 5.6 per cent, below the current 6.7 per cent. Still, Bank of New Zealand currency strategist Raiko Shareef said it took just 13 months for the US unemployment rate to fall by a similar amount to the current level, in line with Yellen's recent comments that interest rate hikes could come six months after an end to the Fed's quantitative easing programme.
Investors "have taken Fed chair Janet Yellen's dovish comments in stride this morning because even as she says the Fed is short of reaching its employment and inflation goals, she is still committed to tapering asset purchases at each successive meeting," Kathy Lien, managing director of FX strategy for BK Asset Management in New York, said in a note. "We believe that most of this week's US economic reports will show a continued recovery in the US economy."
Tonight, investors will be eyeing the US ISM manufacturing index.
