Dollar hits 10-month high

Monday 10th August 2009

The New Zealand dollar hit a 10-month high on the trade-weighted index after the US unemployment rate unexpected fell in July, stoking optimism the world’s largest economy is climbing out of its deepest recession since World War II.

Non-farm payrolls in the US fell by 247,000 last month, half that of the previous month, as the jobless rate fell to 9.4% from 9.5%, according to the Labor Department.

The greenback surged on the data release with the Dollar Index, a measure of the currency versus a basket of trading partners, climbing 1.6% to 78.90. It’s the first time this year that the world’s reserve currency has gained on positive news, and could be a sign foreign exchange markets are returning to following economic fundamentals.

The kiwi jumped to a 10-month high against the yen and euro as the employment data sapped demand for Asian and European currencies.

“The employment data was better than expectations and the US dollar rose on that – the first time it’s gained on positive news in a number of months,” said Philip Borkin, economist at ANZ National Bank. “The kiwi, Aussie and Canadian dollars held in there” and followed the greenback higher, he said, referring to the currencies colloquially.

The kiwi slipped to 66.87 US cents from 67.13 cents on Friday in New York, and climbed to 62.57 on the TWI, a measure of the currency versus the greenback, pound, yen, euro and Australian dollar, from 62.30.

It surged to 65.31 yen from 63.85 yen on Friday, and jumped to 47.15 euro cents from 46.72 cents. It was little changed at 80.24 Australian cents from 80.23 cents on Friday. Borkin said the currency may trade between 66.80 US cents and 67.50 cents today.

“The kiwi’s likely to underperform the Australian and Canadian dollars on a trade-weighted basis”,” but the currencies will probably follow the greenback versus the euro, yen and pound in the coming months, he said.

“This may be the theme for a month and could be a sign currency markets are focusing on the fundamentals.”

Reporting seasons in New Zealand and Australia kick off this week, and will give a general update on the state of the trans-Tasman economies.

Although there’s no one company in New Zealand to shift currency markets, traders will be keeping an eye on the outlook statements to get an idea of where companies see the economy heading, Borkin said.

Businesswire.co.nz

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