By ELLEN READ and Agencies
The United States has lifted interest rates for the first time in four years but the Federal Reserve's mild accompanying statement saw the greenback lose ground.
In a widely anticipated move, the US Federal Reserve boosted its key short-term interest rate by 25 basis points to 1.25 per cent.
"The text around the increase looked for further measured steps to be taken. This enabled the focus to return to interest rate increases to come for New Zealand and subsequently kept the New Zealand dollar firm," ANZ Bank said.
Accordingly, the New Zealand dollar gained on the US currency, sitting at 63.63USc at 5pm yesterday from 62.79USc on Wednesday.
New Zealand is expected to maintain its interest rate advantage over the US with polls tipping the Reserve Bank to lift the cash rate 25 basis points to 6 per cent on July 29.
Westpac's foreign exchange sales manager, Mike Burns, said there was a fairly muted market response to the Fed news as the market had pre-empted it.
He was expecting a small upward bias for the kiwi last night as European markets absorbed the hike and the accompanying statement, in which the Fed reaffirmed its commitment to a measured pace in terms of monetary policy.
The widely expected move ends a 13-step easing cycle that began in 2001 and took the key overnight rate to 1 per cent, its lowest since 1958.
In a statement issued after its two-day meeting, the central bank repeated a pledge to follow a "measured" pace, which markets have taken to imply a course of smaller, quarter-point rate increases rather than larger ones.
"With underlying inflation still expected to be relatively low, the committee believes that policy accommodation can be removed at a pace that is likely to be measured," the Fed said.
"Nonetheless, the committee will respond to changes in economic prospects as needed to fulfil its obligation to maintain price stability," it added in new wording that left it room to move more aggressively if needed.
A Reuters poll of top Wall Street firms after the Fed announcement found 21 of 22 expected another quarter-point hike at the next scheduled policy meeting on August 10.
Several US banks raised their prime lending rates - those offered to their top customers - a quarter point to 4.25 per cent as the Fed action rippled through commercial markets.
The Bush Administration played down any worry that costlier credit could cloud the rosy economic outlook it wanted to highlight going into November's presidential election.
US dollar slips on rates boost
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