The New Zealand dollar fell against a broadly stronger US dollar ahead of the Federal Reserve's two-day policy meeting which may provide hints to how and when the central bank will begin unwinding its massive balance sheet.
The kiwi fell to 72.57 US cents as at 8am in Wellington from 73.12 cents late yesterday. The trade-weighted index fell to 75.78 from 76.08 yesterday.
The Federal Open Market Committee begins its meeting on Tuesday and while it is expected to keep the Fed funds rate unchanged, traders have increased bets on a rate hike by the end of the year to more than 50 percent and are anticipating some comment on 'normalising' the Fed's US$4.5 trillion balance sheet, the result of a vast buying spree of Treasuries and mortgage-backed securities.
Bloomberg has previously reported that the Fed may initially look to trim by US$10 billion a month, starting a process that could take up to 10 years.
"The anticipated announcement of the start of balance sheet normalisation and the likelihood of the Fed keeping the option of a December rate hike alive has been the catalyst for last night's USD move," traders at HiFX said in a note.
