NZ dollar slips below 73USc ahead of US Fed meeting

Photo / Dean Purcell

The New Zealand dollar slipped below 73 US cents as markets prepare for the Federal Reserve's review of its benchmark interest rate amid speculation America's central bank will extend its stimulus measures.

The threat of a double-dip recession for the world's biggest economy prompted markets to speculate Fed chairman Ben Bernanke will extend the central bank's quantitative easing programme when the Federal Open Market Committee meets.

The FOMC, which has already pumped some US$1.7 trillion into the economy by buying long-term Treasuries and debt, is expected to hold the federal funds rate in a bank of zero to 0.25 per cent. The Dollar Index, a measure of the greenback against a basket of six trading partners, gained 0.4 per cent while stocks on Wall Street rose.

"The US dollar rebounded after being oversold, ahead of the FOMC meeting, and it's going to be fairly quiet ahead of that," said Imre Speizer, markets strategist at Westpac Banking Corp.

"If they (the FOMC) does nothing, which is the more likely outcome, risk sentiment could fall and the kiwi could fall with it."

The kiwi fell to 72.80 US cents from 73.13 cents yesterday, and dropped to 67.11 on the trade-weighted index of major trading partners' currencies from 67.20.

It edged down to 62.50 yen from 62.59 yen yesterday, and rose to 79.93 Australian cents from 79.48 cents. It was little changed at 55.03 euro cents from 55.05 cents yesterday, and recently traded at 45.76 pence from 45.79 pence.

Speizer said the currency may trade between 72.70 US cents and 73.60 cents today, and if the downside breaks, it could take another step lower.

The Bank of Japan will review its benchmark interest rate today and is expected to hold steady at 0.1 per cent. Markets will be looking to see if the central bank makes any noises about the strength of the yen, which at 85.93 per US dollar, is at multi-year highs against the greenback.

More bullish news out of Europe kept that region's currency buoyed, with Germany's trade surplus bigger than expected at 14.1 billion euros.