The New Zealand dollar was higher in late local trade yesterday, but it had settled into a narrow range after the US Federal Reserve's surprise interest rate cut overnight, which caused some volatility in the US dollar against major currencies.
In contrast to the Fed's move, there was muted reaction to the Reserve Bank of New Zealand's 25 basis point cut in the official cash rate, traders said. The cut was widely predicted by economists and traders.
"The Fed's cut will keep the kiwi guessing for the next day or two as to where the US dollar is headed against the major currencies like the euro and the yen," said a trader.
The Fed caught financial markets off-guard as it cut its key Federal Funds rate to 4.5 per cent from 5.0 per cent and the discount rate from 4.5 per cent to 4.0 per cent.
It was the Fed's second between-meeting rate cut this year.
At 5.29 pm, the New Zealand dollar was quoted around $US0.4057, up from $US0.4029 late on Wednesday.
Traders said the New Zealand dollar is likely to follow the path of the Australian dollar and they picked near-term resistance for the local currency at $US0.4080.
The New Zealand dollar traded between $US0.4034 and $US0.4059 yesterday.
The Australian dollar has recovered to $US0.5030 after falling to a low of $US0.5005 in morning trade locally. Traders said the US rate cut could force the European Central Bank to cut its key rate at its next meeting on April 26.
"The ECB's next move [will be] an interesting event to watch." said a trader, adding that any sharp reaction by the euro could flow through to the Australian and New Zealand dollars.
On the crossrate against the Australian dollar, the New Zealand dollar was quoted at $A0.8060, up from $A0.8022 late on Wednesday.
- NZPA
<i>Currency:</i> Firmer kiwi trades in slim range
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