Dollar trades near 4-month low as markets await Fed policy review

The kiwi dollar traded at 70.35 US cents as at 5pm.

The New Zealand dollar continued to hover near a four-month low against the greenback as investors await the results of the US Federal Reserve's two-day meeting.

The kiwi dollar traded at 70.35 US cents as at 5pm in Wellington from 70.33 cents at 8am, and down from 70.77 cents late yesterday. Earlier it touched 70.29 US cents, the lowest this year. The trade-weighted index fell to 73.20 from 73.51.

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The Fed is widely expected to keep rates on hold but markets will be closely scrutinising the statement for clues about how many times the central bank will hike this year, in particular after news the US March PCE inflation was in line with the Fed's target of 2 per cent.

The decision and the statement are due early Thursday New Zealand time. Markets have upgraded their forecast to four more hikes this year and any hawkish tone in the statement will add to that view and put "upward pressure on the US dollar," said Westpac Banking Corp market strategist Imre Speizer.

This week's review, however, does not include a press conference or economic projections but only a policy statement.

"The US dollar remains elevated and it will be up to the US dollar's next move to tell us which way kiwi is going," Speizer said. "It's a very big week for the US dollar" with the Fed and US nonfarm payrolls data later in the week.

Against that backdrop, Speizer said the kiwi is likely to ignore domestic economic events such as the overnight dairy auction and tomorrow's jobs data.

The New Zealand dollar was also weaker against the Australian dollar, trading at 93.27 Australian cents from 93.51 cents yesterday but had a muted reaction to the Reserve Bank of Australia's latest interest rate review. It traded at 93.24 Australian cents just before the RBA kept the target cash rate at 1.5 per cent and continued to signal no change any time soon.

The kiwi decreased to 58.26 euro cents from 58.36 cents yesterday and 51.14 British pence from 51.35 pence yesterday. It dropped to 76.95 yen from 77.24 yen and traded at 4.4549 yuan from 4.4821 yuan.

New Zealand's two-year swap rate rose 1 basis point to 2.27 per cent and 10-year swaps fell 3 basis points to 3.17 per cent.