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NZ dollar jumps after Fed talks rate hikes

NZ NewswireNZ Newswire 15/06/2016 Tina Morrison

The New Zealand dollar jumped after the Federal Reserve kept interest rates unchanged and signalled the pace of future increases will be slower than previously expected.

The kiwi touched a high of 70.70 US cents following the Fed decision and was trading at 70.25 cents at 8am in Wellington from 70.19 cents at 5pm on Wednesday. The trade-weighted index slipped to 75.06 from 75.13.

The US dollar index, which measures the greenback against a basket of currencies, declined after Fed officials lowered projections of how much they expect to raise interest rates in the coming years, and pulled back their outlook for growth.

The Fed continues to expect the benchmark interest rate to rise to 0.875 per cent by the end of 2016, although the number of policy makers who see just one increase in 2016 rose to six from one in the previous forecasting round in March.

Officials also lowered their forecasts in the so-called dot plot graph for 2017 rates to 1.625 per cent, down from 1.875 per cent in March.

"The Fed was more dovish than expected," said Westpac's Imre Speizer.

"The downgrade to the dot plots in 2017 and 2018 and longer term were unexpected and also the bigger downgrade to the GDP outlook. That is bearish for the US dollar and bullish for kiwi/US."

The kiwi didn't move much after dairy product prices were steady at the GlobalDairyTrade auction overnight, as a 4.5 per cent drop in whole milk powder offset gains in cheddar and butter.

In New Zealand, first-quarter growth data is published.

The New Zealand dollar slid to 94.84 Australian cents from 95.19 cents, weakened to 62.42 euro cents from 62.61 cents, 49.50 British pence from 49.64 pence, edged lower to 4.6214 yuan from 4.6276 yuan, and was unchanged at 74.45 yen from 74.46 yen.

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