NZ Dollar Exchange Rate (NZD) Declines Against Australian Dollar (AUD) & US Dollar Sees Best 2014 Rates Today

June 19, 2014 - Written by Frank Davies

STORY LINK NZ Dollar Exchange Rate (NZD) Declines Against Australian Dollar (AUD) & US Dollar Sees Best 2014 Rates Today

The New Zealand Dollar followed its Australian relative higher against the US Dollar overnight and advanced to a lifetime high against a number of other major peers following the Federal Reserve’s policy meeting.

After Federal Reserve Chairman Janet Yellen spoke more dovishly than hoped about the US economy and suggested that interest rates will remain unchanged for a sustained period of time investors turned to the higher yielding Oceanic currencies and other higher yielding options.

The U.S. central bank said that its highly accommodative policy remains appropriate in order to keep the nations recovery on track and added additional stimulus tapering is likely if inflation rates and the labour market continue to improve.

"The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored, The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” The Fed said in a statement.

As a result the New Zealand Dollar surged. The trade weighted index of the Kiwi climbed to a record high adding a further blow to Reserve Bank of New Zealand governor Graeme Wheelers desire to see the currency weaken.

As the RBNZ raised interest rates and continued to be hawkish regarding the state of the New Zealand economy the chances of a drop is unlikely.

“The RBNZ is unlikely to successfully talk the currency down when it is increasing interest rates and retains a pretty hawkish bias. It has been a futile battle,” said a foreign exchange strategist at ING Groep NV.

So far this year the New Zealand Dollar has advanced by 6.2% against the US Dollar this year.

Australian Dollar (AUD) proving popular with investors

With comparatively high interest rates compared to the USA, UK, Japan and the Eurozone, New Zealand is attracting the attention of foreign investors eager to get better returns. The Australian Dollar is also proving to be popular.

The Kiwi eased against the Australian Dollar after New Zealand’s gross domestic product report came in softer than forecast. The data took some of the shine off of the currency’s highs and saw it ease away from its record highs.

New Zealand's gross domestic product grew by 1% in the first quarter of the year, from an upwardly revised 1% gain in the fourth quarter, slightly below the Reserve Bank's 1.1% expectation and the 1.2% expected by economists.

“Initially the headline number looked like it was less than expected, but it was short of backward revisions which helped lift things a little. From a kiwi perspective, markets will be watching very closely if it gets above 87.50 US cents again. It looks more likely than not at the moment, because it has stayed so elevated for so long," Said a foreign exchange trader.

The currency was also weighed upon by concerns over the situation in Iraq. Government forces continued to battle Islamic extremists for control of the nation’s largest oil refinery which has led to worries over a disruption to the world’s oil supply.

The conflict could escalate further as the USA ponders whether to use air strikes to support the embattled Iraqi forces.

The Kiwi could soften further against the US Dollar later in the session if today’s US initial jobless claims report comes in strongly.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Currency Predictions Daily Currency Updates Poun Forecasts