WELLINGTON/SYDNEY: The New Zealand dollar suffered a double whammy on Thursday, as the Reserve Bank of New Zealand softened its stance on future interest rate increases while expectations that US interest rates may rise next year bolstered the greenback.
The kiwi fell around half a US cent to a session low of $0.7769 on the RBNZ's rate outlook, which piled on more pressure after the Fed statement had already knocked the currency off a session high of $0.7977.
The kiwi pushed lower after the RBNZ held its official cash rate at 3.5 percent, as widely expected, and removed references to further monetary tightening seen in previous statements, which raised speculation that any future rate rises might not come until later next year or in 2016.
"The RBNZ's move to a bit more of a neutral bias on the rates side of things reduces the yield advantage of the New Zealand dollar," ANZ currency strategist Sam Tuck said.
A Reuters poll conducted after the RBNZ's policy announcement showed most economists believe that the central bank will wait at least until late 2015 before raising the official rate, after lifting it a total of 100 basis points earlier this year.
Growing expectations that the Fed may begin raising rates from rock bottom levels around the same time would boost the greenback, ANZ's Tuck said, adding to the kiwi's weakening trend following its 12 percent sell-off since July.
"This will give people confidence to go back into building their long US dollar positions...so you'd expect the New Zealand dollar to decline," he said, adding that a slide in the kiwi towards $0.7500 remained possible before the end of the year.
Short-term interest rates were mixed after the RBNZ statement, although government bonds slipped, nudging longer-dated yields 1.5 basis points higher.
The RBNZ repeated it mantra against strength in the kiwi, characterising it as "unjustified" and "unsustainable" even as the kiwi has retreated sharply from a post-float high versus a currency basket.
Meanwhile, the Aussie dollar lost 0.3 percent to $0.8775, continuing to lose ground after turning lower overnight.
The Antipodeon currencies came under pressure as investors piled into the greenback on growing confidence in the US economy after the Fed ended its monthly bond purchases The Aussie fell as far as $0.8776, from $0.8912 ahead of the Fed statement.
Shane Oliver, head of investment strategy at AMP Capital markets, said in a note to clients the ending of US quantitative easing would remove "a source of upwards pressure on the $A, allowing it to continue its downtrend".
Oliver said he anticipates the AUD to fall to around $0.80 over the next year or so. In the near term, US third quarter GDP data due later in the day will be closely watched.
"Robust data reinforces the prospect of the Fed moving further towards policy norminalisation," said David de Ferranti, a market analyst at FXCM
. "This turn may offer further fuel to the greenback and renew pressure on the AUD/USD."
Australian government bond futures were flat, with the three-year bond contract at 97.380, while the 10-year contract was at 96.660.
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