18 Dec 2014

Fed may raise short-term interest rates

2:26 pm on 18 December 2014

The United States central bank has indicated it may raise short-term interest rates next year, but is cautious on exactly when.

That rate had been kept at zero percent since late 2008, when the Federal Reserve slashed rates in the wake of the financial crisis.

The New Zealand dollar had a wild ride this morning, prompted by changing interpretations of the United States Federal Reserve's latest pronouncements.

The local currency traded in a range of more than 1 US cent, after the Fed's statement was initially misinterpreted to mean it would delay raising interest rates next year.

Senior foreign exchange strategist at ANZ Sam Tuck said Janet Yellen then clarified the statement, putting the target for raising rates back to the middle of next year, right on market expectations.

He said the currency also briefly rose after stronger-than-expected economic growth figures.

Mr Tuck said the US dollar side of the trade ended up being well-positioned for the Fed's comments.

At midday today, the kiwi was trading at 76.91 US cents, down from the high near 78 cents and about a half a cent down from late yesterday.

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