Sept. 21 (Bloomberg) -- New Zealand’s dollar fell versus the U.S. currency on speculation that the Federal Reserve will hold off from expanding its balance sheet, reducing demand for higher-yielding assets. The so-called kiwi also dropped against all its major counterparts on prospects the country’s Reserve Bank will refrain from raising interest rates amid concern about the impact of last month’s Christchurch earthquake. Australia’s dollar rose for a second day versus New Zealand’s on speculation the larger nation’s central bank will increase borrowing costs, boosting the extra yield offered by its assets. The Aussie fell against the greenback as Asian stocks trimmed gains and futures for U.S. stock indexes declined. “The market has priced in expectations for additional easing by the Fed too fast and too much,” said Kazumasa Yamaoka, a chief strategist at investment advisory company GCI Research Institute Ltd. in Tokyo. “Short-term players may rush to unwind short positions on the dollar against such higher- yielding currencies as the kiwi, if the Fed decides to stand pat.” A short is a bet that an asset price will decline. New Zealand’s dollar dropped 0.4 percent to 72.78 U.S. cents as of 3:41 p.m. in Wellington from the closing price in New York. It declined 0.6 percent to 62.26 yen. Australia’s dollar climbed to NZ$1.2986 from NZ$1.2960 in New York yesterday, when it gained 0.4 percent. The so-called Aussie was at 94.51 U.S. cents from 94.72 cents yesterday, when it reached 94.94, the strongest level since July 2008. The MSCI Asia Pacific Index of regional shares trimmed its gains to 0.1 percent on the day after earlier advancing as much as 0.4 percent. Futures for the Standard & Poor’s 500 Index fell 0.2 percent. FOMC Meeting The Fed’s Open Market Committee at today’s meeting will hold off from expanding the central bank’s balance sheet by purchasing securities, according to 60 of 64 analysts surveyed Sept. 16-17. Fifty-four of 63 economists said the Fed will leave unchanged a sentence saying high unemployment and low inflation warrant “exceptionally low” rates for an “extended period.” “Bernanke has indicated a willingness for the Fed to do more to support economic growth, but it’s really conditional on a much more substantial deterioration in the economic outlook,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Brown expects no change in Fed policy or the “extended period” language on Sept. 21. RBNZ View The kiwi also dropped as investors slashed bets that the Reserve Bank of New Zealand will raise interest rates next month The RBNZ left its overnight cash rate unchanged on Sept. 16 after raising it in June and July. The central bank cut its building and inflation forecasts and said the Sept. 4 earthquake in the city of Christchurch may reduce growth by 0.3 percentage point this quarter. “Local fundamentals will not warrant a significantly stronger New Zealand dollar,” said Khoon Goh, head of market economics and strategy in Wellington at ANZ National Bank Ltd. Swap traders saw a 2 percent chance New Zealand’s central bank will boost rates next month, according to an index compiled by Credit Suisse AG. --With assistance from Jacob Greber in Sydney, Scott Lanman and Alex Tanzi in Washington. Editors: Garfield Reynolds, Nate Hosoda. To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net. To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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