Dollar steady ahead of Fed decision, kiwi slumps after RBNZ holds

By Gregor Stuart Hunter

SINGAPORE, Oct 28 (Reuters) - The US dollar held at a two-week high on Wednesday ahead of policy decisions from central banks, with the Federal Reserve widely expected to leave its policy interest rate unchanged while signalling the probability of any December move.

Most of the dollar's peers were unmoved ahead of the Fed decision. The euro was flat at $1.1129, as was the British pound at $1.3307. Against the yen , the dollar oscillated between gain and loss and was last 0.1% weaker at 157.81 yen.

The kiwi dollar sank as much as 1.7% to $0.5585 after the Reserve Bank of New Zealand unexpectedly held interest rates at 2.75%. A Reuters poll had 22 of 27 economists forecasting the central bank would raise rates.

"The market just got that wrong," said Mike Houlahan, director at Electus Financial Ltd in Auckland. "The election is only 10 days away," he added. "It's common courtesy not to get involved in politics."

The Australian dollar was 0.1% stronger at $0.7035 after the release of inflation data, which was 1.3% in the third quarter of the year, after 0.6% the previous quarter. The trimmed mean measure of core inflation was 1%, matching market estimates and keeping the annualised rate at an above-target 3.6%.

The Reserve Bank of Australia will debate whether four interest rate hikes this year will prove sufficient to return inflation to target at a policy meeting next week, Governor Michele Bullock told lawmakers on Wednesday.

In the US, traders broadly expect no change in central bank policy. Fed funds futures are pricing an implied 91% probability the Federal Open Market Committee will keep its policy interest rate on hold, the CME Group's FedWatch tool showed.

"The Fed doesn't need to hike today to move markets," said Chris Weston, head of research at Pepperstone Group in Melbourne. "It simply needs to change the perceived probability of hiking in December."

The US dollar index , which measures the greenback's strength against six currencies, rose 0.3% on Tuesday to 102.40, its highest since October 14. The yield on the US 10-year Treasury bond was unchanged at 4.9967%.

In cryptocurrencies, bitcoin was flat at $80,736.07, while ether nudged up 0.1% to $2,345.25.