30 Jan 2014

Dollar falls on OCR and Fed decisions

7:22 pm on 30 January 2014

The New Zealand dollar fell as much as 1 cent against the American dollar on Thursday, before bouncing back slightly.

300114. Photo Diego Opatowski / RNZ. dOLLAR DOWN

Photo: RNZ

That was after the Reserve Bank left its key interest rate unchanged and the Federal Reserve in the United States further reduced its money printing programme.

Reserve Bank governor Graeme Wheeler warned that the Official Cash Rate would rise soon because of increasing inflation pressures. The New Zealand dollar fell as low as 81.7 US cents after the central bank left the OCR unchanged at its record low of 2.5 percent.

The senior foreign exchange strategist at ANZ, Sam Tuck, said the Fed's decision had already depressed the Kiwi and it fell further when Mr Wheeler announced he was keeping the OCR on hold.

Mr Wheeler is expected to raise the OCR to at least 2.75 percent when he delivers his next monetary policy statement in March - and might even raise it to 3 percent.

The Federal Reserve will reduce its bond buying programme from February by another $US10 billion a month to $US65 billion from $US85 billion a month in 2013. It has been buying bonds in an effort to keep interest rates low and stimulate growth.

The BBC reports the decision to keep slowing the purchases of long-term bonds was backed by all members of the monetary policy committee for the first time since 2011.

The Fed also left its overnight interest rate unchanged at 0% - the level it has been at since December 2008.

It was the final meeting for chairman Ben Bernanke, who is set to step down at the end of this week. Janet Yellen will be the new chair.