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NZ Dollar Tops Us56c For First Time In Two Months

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, March 20 NZPA - The New Zealand dollar squeezed above US56c early today for the first time in more than two months, as investors feared the United States Federal Reserve's Treasury bond purchases would end up debasing the world's reserve currency.

The Fed said yesterday (NZT) it would purchase $US300 billion ($NZ563.5 billion) of long-dated Treasuries over the next six months, its first large-scale buying of government debt since the early 1960s.

It also said it will increase mortgage-backed debt purchases in a bid to rescue the economy, sending the US dollar to its worst one-day loss since at least 1985.

By 8am today the kiwi was buying US55.54c, from US54.16c at 5pm yesterday and around US53c before the Fed's announcement around 7.15am (NZT) yesterday.

BNZ Capital currency strategist Danica Hampton said the kiwi rate against the greenback had chased broad US dollar weakness.

Analysts and investors feared the increase in US money supply would erode the purchasing power of the US dollar.

"While their concerns have so far been expressed with widespread selling of the USD we should note that the link between whether or not quantitative easing undermines the USD is inflation," Ms Hampton said.

"Only if quantitative easing stokes inflation will it erode the purchasing power of US dollars and in the longer term weigh on the USD.

"The speed and magnitude of the recent ascent in NZD/USD isn't likely to be sustainable but traders will need a cast iron stomach to fight or fade it in the short term," she said.

Mixed in with the foreign exchange outcome had been a run higher for the NZ dollar against the Australian dollar.

The kiwi climbed from A80.17c at yesterday's local close to around A81.10c early today, its highest level in nearly two months, before declining to A80.94c by 8am.

The kiwi was also buying 0.4064 euro at today's local open from 0.4025 at 5pm, while the yen climbed to 52.45 from 51.99. The trade weighted index was 54.92 at 8am from 54.17 at 5pm.

NZPA WGT Reuters mjd kn

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