The New Zealand dollar fell today, following yesterday’s gains, after the minutes of the Federal Reserve monetary policy meeting showed that the central bank’s policy makers were concerned about the economic slowdown in the United States. The worsening outlook for US economic growth added to concerns caused by the slowdown of China’s expansion and the recession in Europe.
The members of the Federal Open Market Committee talked about signs of weakening economic activity in the United States:
The information reviewed at the June 19–20 meeting suggested that economic activity was expanding at a somewhat more modest pace than earlier in the year. Improvements in labor market conditions slowed in recent months, and the unemployment rate remained elevated. Consumer price inflation declined, primarily reflecting reductions in the prices of crude oil and gasoline, and measures of long-run inflation expectations continued to be stable.
The FOMC revised down its near-term forecast for growth of gross domestic product because of “a slower pace of private-sector job gains, more-subdued retail sales, a lower trajectory for personal income, greater restraint in government purchases, and weaker net exports than the staff anticipated at the time of the previous projection”. Additionally, the estimate for growth in medium term was also lowered as a result of the negative influence from European problems:
Recent adverse developments in Europe and tighter domestic financial conditions led the staff to revise down somewhat the medium-term forecast for real GDP growth.
On the positive side, the members of the Committee were discussing the possibility of additional stimulus. For now, the prospects for a next round of quantitative easing did not help the New Zealand currency, but that may change after traders digest the news.
NZD/USD fell from 0.7973 to 0.7945 and NZD/JPY declined from 63.56 to 63.26 as of 00:29 GMT today. EUR/NZD advanced from 1.5342 to 1.5390.
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