Opinion: Kiwi jumps to 59 USc as US dollar dives

By BNZ Markets economists By now most readers will be aware that the FOMC grabbed all the attention yesterday and triggered sharp responses in all markets, including FX. As we have noted for the past two days broader offshore issues are currently the key drivers to our NZD market rather than any inherent local analysis and the past 24 hours rally for the Kiwi confirms this. The burst of NZD strength has shown scant regard to any touted resistance levels. We open this morning after an overnight session that flirted with the US 60cent level but that has as we write the NZD/USD at the 0.5890 level, with gains also noteworthy against the AUD, the JPY and the GBP. Yesterdays FOMC was about as accommodative as they could have been. The expansion of the debt the Federal Reserve will purchase (agencies and MBS) as well as the slashing of the Fed Funds rate to a target of 0-0.25% surprising even the most dovish of US analysts. The Federal Reserve clearly has no inflation concerns as they pursue quantitative easing in a bid to avoid deflation. While the attention of analysts is on the woes of the US economy and the expansion of fiscal and monetary policy then in the first instance expect support for the NZD to shape at the 0.5725/0.5775 window, with progress closer to early November highs at the 0.6100/0.6150 level likely to be coloured by volatile trading in markets that are thinning in the lead up to the Christmas and New Year breaks. On the day we look to trade initially inside a 0.5800-0.5950 window. Locally we will consider the National Bank Business Outlook, there's a chance that headline business confidence could hold up reasonably well in today's release at 3pm. As always, though, we'll be more interested in the underlying details, with firms' intentions regarding investment and employment of particular note. There's a barrow load of releases and news to attempt to note in overnight markets, it's not just the FOMC that has had the spotlight on centre stage. Lifetime lows for the GBP on cross rates followed the announcement of the biggest rise in UK Jobless claims since 1991 and the simultaneous release of the minutes from the MPC of December 4th that showed the members not only voted 9-0 to ease 100bp but considered a larger move. Jobless numbers were 75.7k as the unemployment rate rose to 6.0% in October, (previous 5.8%). 13 year highs for the Yen against the USD is drawing as you'd expect some cautionary comments from various Japanese officials, to such an extent that some paring of "long" Yen positions is noted in commentary and flows. Eurozone CPI data from November showed a YOY reading of 2.1% (previous 3.2%), but for now the reticence of the ECB to further ease monetary settings is well documented and continues. In a sign all is not well in a broader sense you could note the overnight widening of the rouble band by Russian authorities and the 5% plunge by the Ukranian Hryvnia (that has actually fallen some 90% since September). That should ensure that Kiev is next springs hottest (and cheapest) destination for British and European tour buses. * BNZ Currency Strategist Danica Hampton is away on leave. All of the research produced by the BNZ Markets team of economists is available here.