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FOREX-Dollar slips after Fed more dovish than expected
June 19, 2014 / 5:05 AM / 3 years ago

FOREX-Dollar slips after Fed more dovish than expected

* Dollar's recent gains unravel as U.S. yields retreat
    * Fed stays dovish but still confident in economic recovery
    * NZD hits trade-weighted record high

    By Lisa Twaronite and Ian Chua
    TOKYO/SYDNEY, June 19 (Reuters) - The U.S. dollar wallowed
at its lowest in nearly two weeks against a basket of major
currencies on Thursday, in the wake of the Federal Reserve's cue
that U.S. interest rates will stay low for a while.
    The New Zealand dollar soared to a record high against a
basket of currencies after the Fed's dovish stance.
    New projections suggested the Fed saw rates rising more in
2015 and 2016 than it had previously forecast, but officials
lowered their long-term rate target. The Fed also sounded
comfortable with the inflation outlook despite recent signs of a
pick-up in price pressure.
    Fed chief Janet Yellen said there had been "a slight decline
of projections pertaining to longer-term growth" that prompted
Fed officials to lower their view of the expected long-term
federal funds rate from 4 percent to 3.75 percent.
    As a result, U.S. Treasury yields fell, with the benchmark
10-year rate dropping to 2.579 percent in Asia from
its U.S. close of 2.615 percent. 
    "We're seeing broad extension of the U.S. dollar weakness," 
said Sue Trinh, currency strategist at RBC Capital Markets.
    "Going forward, U.S. dollar weakness is likely to be
sustained unless we get a sea change in the communique coming
from the Fed, so upside risks look likely for euro, kiwi and
Aussie," she added.
    The dollar index unwound all of the gains made in the
lead-up to the Fed meeting. It slipped 0.3 percent on the day to
80.378, and fell as far as 80.353, a level not seen since June
9.
    Against the yen, the greenback was nearly flat on the day at
101.91, down from a one-week high of 102.38 yen hit on
Wednesday before the Fed's announcement, while the euro was
slightly lower at $1.3589 after it touched $1.3600 on
Wednesday.
    "In the end, it was just merely a battle of positioning as
traders unwound positions in anticipation of a more hawkish Fed
tone following the spike in CPI," said Stan Shamu, market
strategist at IG in Melbourne.
    The Fed cut its monthly bond buying programme by a further
$10 billion to $35 billion in a widely expected move and
expressed confidence that the economic recovery remained on
track. 
    Another cloud looming on the horizon and sapping investors'
risk appetite was Argentina's threat of default on its debt. On
Wednesday, that country's government called it "impossible" to
pay bond service due on June 30, citing a U.S. court decision
earlier in the day. 
    Investors also kept a wary eye on the ongoing insurgency in
Iraq. The government has requested U.S. air support as it fights
Sunni rebels who have seized major cities. 
    Commodity currencies fared particularly well against the
dollar with the New Zealand currency rallying nearly 1 percent
ti hover around six-week highs of $0.8736. It was last
down 0.2 percent at $0.8713. On a trade-weighted basis, the kiwi
 rose to a record high of 81.30. 
    The outlook for higher New Zealand interest rates was
reinforced by data showing the economy grew a solid 1.0 percent
in the first quarter from the previous quarter, a result that
cemented New Zealand as one of the fastest-growing developed
economies. 
    The Australian dollar was steady on the day at $0.9404
, having gained 0.7 percent on Wednesday.

 (Editing by Jacqueline Wong)

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