Oil drags equities as U.S. dollar up

The Federal Reserve hiked rates for the first time in almost a decade on Wednesday, signalling faith that the USA economy had largely overcome the wounds of the 2007-2009 financial crisis.

The Fed raised its benchmark federal funds rate from the zero bound, where it was pegged since December 2008, to 0.25-0.50 per cent, kicking off a likely series of rate increases which the central bank pledged would be "gradual" and dependent on incoming economic data.

The Zealand dollar's six percent gain since September has hurt sentiment among exporters, who would prefer an exchange rate several cents lower, Finance Minister Bill English said.

The dollar may fall after the Fed decision later Wednesday, due to possible trading along the lines of "buy the rumor, sell the fact", said JP Morgan in its morning note.

"Against the key major currencies, we have noticed that previous three Fed tightening episodes resulted in a temporary stall in the dollar rally after the first hike, suggesting a possible temporary decoupling of interest rates and FX", said Heng Koon How, senior currency strategist for Credit Suisse private banking and wealth management in Singapore.

Investors are primed to focus on the Federal Open Market Committee policy statement, projections on the economy and the policy path and a news conference with Fed Chair Janet Yellen.

The dollar has been rising for months on expectations of the latest move, as higher rates offered investors the prospect of better returns on dollar-denominated assets.

Against the New Zealand and the Canadian dollars, the greenback edged up to 0.6730 and 1.3816 from yesterday's closing quotes of 0.6793 and 1.3779, respectively. "How emerging markets and their currencies fare will be key to gauging risk appetite after the Fed's hike", he added.

Another sustained rise in the United States dollar could put more pressure on commodities, by making them more expensive when measured in other currencies.

The local currency gained to 94.12 Australian cents from 93.72 cents yesterday, slipped to 82.29 yen from 82.40 yen, dropped to 4.3450 yuan from 4.3588 yuan, and was little changed at 62.03 euro cents from 62.04 cents. The Aussie was down 0.7 percent at $0.7182. The euro hit a more than one-week low against the dollar of $1.08310.

The rate forecasts, or dot points, from Fed members were a little higher than many expected with 100 basis points of hikes pencilled in for next year and a terminal rate of 3.5 percent.