NZ dollar gives up gains on Fed balance sheet unwinding

The kiwi traded at 73.50 US cents as at 8am. Photo / 123RF

The New Zealand dollar gave up some of its gains from yesterday's poll putting the incumbent National Party in the lead ahead of this weekend's election after the Federal Reserve stuck to its track for future interest rate hikes and started unwinding its massively expanded balance sheet.

The kiwi traded at 73.50 US cents as at 8am, having earlier reached a six-week high of 74.33 cents, from 73.12 cents before yesterday's poll that gave a boost to the local currency. The trade-weighted index was at 76.75 from 75.97 yesterday.

The greenback initially fell after the Federal Open Market Committee kept the federal funds rate between 1 per cent and 1.25 per cent before rallying as investors digested the statement.

The Fed stuck to its rate hike projections for another increase this year and three more in 2018, and said it will start dialling back its US$4.5 trillion stockpile of assets in what's reported to be a decade-long programme trimming the balance sheet by US$10 billion a month.

"On the release of the FOMC, the NZD spiked to a high of 0.7433 and the AUD spiked to 0.8102, but both currencies have since plunged, as the FOMC statement supported the USD, with a more hawkish outlook than some expected," Bank of New Zealand currency strategist Jason Wong said in a note.

"The NZD is the only major that is still up for the day against the USD."

The kiwi jumped half a US cent after the 1News Colmar Brunton poll yesterday showed the National Party leapfrogged its rival Labour Party, with 46 per cent support to 37 per cent. Polling ahead of Saturday's general election has shown a tight contest.

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Investors will be watching domestically for second-quarter gross domestic product figures which are expected to show economic growth accelerated to a quarterly pace of 0.8 per cent from 0.6 per cent in March. Government data yesterday showed a smaller current account deficit than expected at 2.8 per cent of GDP.

The kiwi rose to 82.56 yen from 81.43 yen yesterday ahead of the Bank of Japan's review which is expected to keep policy unchanged. The local currency increased to 91.66 Australian cents from 91.10 cents yesterday and gained to 4.8303 Chinese yuan from 4.7978 yuan. It gained to 54.50 British pence from 54.03 pence yesterday and advanced to 61.81 euro cents from 60.84 cents.