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NZ Dollar Shoots To Near Record As Fed Savagely Cuts Rates Again

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Fuseworks Media
Fuseworks Media

By Simon Louisson of NZPA

Wellington, March 19 NZPA - The New Zealand dollar soared more than one US cent today and was within spitting distance of a new post-float high after the US Federal Reserve again savagely cut interest rates.

By 5pm today, the kiwi was buying US81.40c, having touched US81.50c, against its US80.25c close yesterday.

Dealers said there remains as a good chance the kiwi will test the US82.13c record with confidence in the US dollar ebbing with each rate cut.

New Zealand official rates are now six percentage points above US rates after the Fed cut its rate by 75 basis points to 2.25 percent.

"Interest rate differentials saw buying continue into kiwi, aussie and everything under the sun basically," a Wellington dealer said.

"Even if we drop our rates by 50 basis points, it's not going to make any difference."

Only Japan now has lower rates than the US.

Some had expected the Fed to cut by 100 basis points, but analysts reckoned the central bank was right to keep something in reserve.

The Fed has now cut rates a full 3 percentage points since September as its tries to deal with the credit crisis and stave off recession. And there could be more cuts to come, dealers said.

Kathy Lien, chief strategist Forex Capital Markets LLC, said if the US economy did not recover or liquidity problems did not ease, "we still believe that the Federal Reserve could drop interest rates to 1 percent, which would come close to matching Japan's levels".

The Wellington dealer said if the Fed had made a bigger move, people might have said, `what do they know?', and acted adversely.

"They've left their powder dry and met the market expectations without over fulfilling them."

Buying in the kiwi was tentative at first. It was only when the Dow Jones share index rose more than 300 points that buyers felt comfortable to pile in. Then it took off.

"The perception is people have no confidence in the US dollar. They are worried about what's out there," the Wellington dealer said.

Any commodity that acts as a hedge against the dollar is in favour.

He said the dollar would remain out of favour until world financial markets were back on an even keel.

The kiwi made gains on all currencies.

From a seven-month low against the yen of 76.80 early yesterday, it closed on 81.0.

Similarly, against the euro it climbed from a four-month low around 0.5035 to 0.5192.

Against the Australian dollar, the kiwi was buying A87.29c, barely changed from A87.26c at 5pm yesterday.

The trade weighted index jumped to 72.10 from 70.88.

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