NZ dollar jumps after Fed Reserve decision

NZ dollar jumps after Fed Reserve decision

The New Zealand dollar leapt almost half a cent against the US currency, following a decision by the Federal Reserve to keep interest rates at historic lows.

Although the US economy is improving the Federal Reserve said the federal funds rate would remain in a target range of between 0 percent and 0.25 percent.

The Kiwi was trading at around 63.20 US cents before the announcement. It quickly pushed up through 64 cents and was heading towards 64.50 cents. But by 8am it had fallen back to around 63.80 cents.

Although the Fed has kept rates unchanged, the members of the policy-making Federal Open Market Committee made clear in their notes that they are still expecting rates to rise by the end of the year.

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term."

The Fed has kept rates at virtually zero since the global financial crisis. There has not been a rates hike since 2006.

The markets had judged it a 50/50 call on whether there would be an increase in rates.

The US economy is growing at over 2 percent and the unemployment rate has fallen to 5.1 percent.

But US wage growth has been modest and any lift in rates would increase borrowing costs for US businesses and for millions of homeowners.

The Fed is also concerned about the slowing Chinese economy and said it was "monitoring developments abroad".

The Committee said it expects the US economy to grow by 2.1 percent this year and by 2.3 percent next year – down from a forecast in June of 2.5 percent.

Thirteen of the 17 Fed officials at the meeting indicated they expect a rate hike by the end of this year.

Most suggested an increase in the Fed rate to between 0.25 and 0.50 percent.

Stocks moved in and out of positive territory in the minutes after the announcement.

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