Reuters: US Dollar Report: FOREX-Dollar falls prey to dovish Fed, NZD resilient

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FOREX-Dollar falls prey to dovish Fed, NZD resilient Apr 26th 2012, 00:03 Wed Apr 25, 2012 8:03pm EDT * Dollar struggles at 3-week lows vs basket of currencies * NZD survives RBNZ's attempt to talk down currency * Yen keeps eye on BOJ policy meeting on Friday By Ian Chua SYDNEY, April 26 (Reuters) - The U.S. dollar floundered at three-week lows against a basket of major currencies on Thursday, having fallen prey to the Federal Reserve's dovish stance on policy. On the other hand, the New Zealand dollar showed remarkable resilience even after the country's central bank warned it could consider cutting interest rates if it remained so strong. The dollar index was last at 79.020, having fallen as low as 78.995 after Fed Chairman Ben Bernanke said the central bank would not hesitate to launch another round of bond buying if the economy needed it. The Fed has previously engaged in two rounds of assets purchases totalling $2.3 trillion, known as quantitative easing, to drive down interest rates and stimulate the economy. "Despite its projections that GDP growth will pick up, the FOMC expects unemployment to remain well above target by the end of 2014. This means that there is scope for further monetary easing down the road, especially if the recovery falters," said Philip Marey, strategist at Rabobank. This saw the euro hit a three-week high of $1.3237, bringing in focus a band of resistance at $1.3370/90 seen in late March and early April. It last stood at $1.3227. The Canadian dollar rose to a seven-month high against the greenback, which fell as far as C$0.9824. Sterling held near a 7-1/2 month high at $1.6183 even after data showed Britain's economy falling into its second recession since the financial crisis. Against the yen, the dollar retreated from a high of 81.71 to 81.30. But it stayed in a 80.30/81.80 range seen in the past few sessions. The Japanese currency is unlikely to make much headway ahead of a Bank of Japan policy meeting on Friday. According to sources familiar with the central bank's thinking, the BOJ is likely to ease monetary policy on Friday by boosting asset purchases by up to 10 trillion yen ($123 billion). Meanwhile, the New Zealand dollar traded at $0.8150 , having popped to a high of $0.8176 as the markets covered short positions after the Reserve Bank of New Zealand kept rates unchanged at a record low 2.5 percent as expected. RBNZ Governor Alan Bollard, however, said the local dollar was still high despite recent falls in commodity prices, and warned that would influence future policy. "Whilst this at face value opens the door for policy easing, we see this as largely (another) attempt to jawbone the currency lower," said Michael Turner, strategist at RBC Capital Markets. "In our view, further easing would only be justified by renewed deterioration in global growth prospects; given the reasonable state of the domestic economy, any easing now would risk hampering the deleveraging process. As such, we continue to think the next move is a hike." Still, rate markets were now pricing in a one-in-five chance of a cut at the next RBNZ meeting and 7 basis points of easing over the next 12 months. The Australian dollar was spared much of the drama, holding at $1.0361. It has risen in the past two sessions from a low of $1.0247, hit after tame inflation data cleared the way for a rate cut next week. Link this Share this Digg this Email Reprints

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