SYDNEY The dollar drifted off a two-week peak against a basket of major currencies on Thursday after the Federal Reserve stuck to its stimulus program while a less-dovish-than-expected New Zealand central bank gave the kiwi dollar a boost.
Following a two-day meeting, the Fed repeated its vow to maintain rates near zero until mid-2015 and kept its pledge to support growth even as some parts of the economy looked a bit better.
While the outcome was not a surprise, traders said this should give investors confidence to use the dollar as a funding currency for carry trades if they so choose to.
The dollar index .DXY retreated from a peak of 80.151 to 79.940, but remained well above last week's trough of 78.935.
As a result, the euro climb off a near two-week low of $1.2921 to $1.2970. The single currency has lost steam since hitting $1.3140 on October 17 as markets grew impatient waiting for Spain to request a bailout and activate the European Central Bank's bond-buying program.
But investors were also wary of becoming too bearish on the euro, given that Madrid could trigger the program any time. Data on Wednesday showed euro zone businesses suffered another dismal month in October, suggesting the region may be headed for a deeper recession.
The yen, already struggling on expectations that the Bank of Japan will ease policy next week, remained pinned down. The dollar bought 79.78 yen, still within easy reach of a three-month peak of 80.02 set earlier in the week.
The best performers were the Antipodean currencies. The Australian dollar was underpinned by higher-than-expected inflation, which caused markets to scale back the chances of a November interest rate cut.
It was at $1.0349, having rallied almost 1 percent on Wednesday. The Aussie has gained more than a full cent from Tuesday's trough of $1.0230. Immediate resistance is seen at the October 18 peak of $1.0412.
Investors also warmed to the New Zealand currency after new central bank governor, Graeme Wheeler, kept rates unchanged and reiterated expectations for inflation to head back towards the middle of its 1-3 percent target range.
Some had been wagering that low inflation would lead the bank to open the door for a possible easing.
"The doves are left empty-handed as the brief communique was surprisingly balanced," said Annette Beacher, head of Asia-Pacific Research at TDSecurities.
The kiwi dollar jumped almost 70 pips to a high of $0.8210 on the back of the central bank statement, pulling well away from a six-week low of $0.8100 plumbed earlier in the week.
There are no major market-moving data in Asia on Thursday. In Europe, Britain releases a preliminary reading of its third-quarter gross domestic product. The economy is expected to expand slightly, following three consecutive quarters of contraction.
The pound rose some 0.5 percent to $1.6038 on Wednesday, with further gains heavily dependent on the report.
"Sterling may continue to track higher of the next 24-hours of trading as the economic docket is anticipated to show the region emerging from the double-dip recession," said David Song, currency analyst at DailyFX.
(Editing by Wayne Cole)