On Wednesday September 11 New Zealand's currency hit the highest- level in one month against the U.S. counterpart on Thursday as the Reserve Bank of New Zealand made no adjustments to its monetary policy, leaving the key rate at 2.5% and pointed at possible tightening in policy next year. The RBNZ Governor Graeme Wheeler said that additional stimulus may be needed to curb the inflation that is expected to hover around 2% in 2014 in case housing pressure spill into consumer prices. The Official Cash Rate has been held at a half-century low of 2.5% since March 2011, when policymakers cut the refinancing rate after the Canterbury earthquake struck. According to Dukascopy equally-weighed currency index during the week the kiwi advanced 1.65%.
The USD/JPY was highly volatile last week, as both the U.S. Dollar and Yen were among top losers. Meanwhile, the greenback and other assets denominated in the U.S. currency were under scrutiny before the Fed's 2-day meeting that starts next Tuesday, while Japanese fundamentals had only had a slight impact on the Yen's development. During the last five trading days, the U.S. Dollar lost 1.58%, while the Japanese currency fell 1.36%. As the key FOMC meeting is approaching, traders are paying closer attention to U.S. fundamentals, which can play a decisive role in Bernanke's decision. The U.S. Labor Department said first-time jobless claims tumbled by 31,000 in the week ended September 7, reaching 292,000 from 323,000 a week earlier and outpacing analysts' expectations of a 323,000 reading. However, the most of decline came from two states, which both were upgrading their computer systems and were not able to process all the claims they received during the week. Furthermore, applications for U.S. home loans tumbled due to high mortgage rates, while refinancing activity plunged to its lowest in more than four years.
While the economy is sending mixed signals, the latest polls are showing an anticipated reduction in stimulus programme will not be a big deal, as 38% of respondents are expecting the U.S. central bank to lower its monthly bond purchases. Another 35% are seeing a similar move only during the October or December meeting. And just less than 25% are considering the Fed will postpone this decision until next year. Moreover, polls showed that 57% of respondents do not expect a sudden change in the markets, as tapering is already priced in. Nevertheless, this decision will affect not only the world's largest economy, but the global economy as well, as emerging markets are likely to experience another massive sell-off.