Dollar falls as weaker US earnings weigh on stocks

Monday 19th October 2009

The New Zealand dollar sank below 74 US cents as weaker-than-expected US earnings on Friday stoked concern companies didn’t manage the hoped-for big turn-around in the third quarter, prompting investors to return to the relative safety of the greenback.

Bank of America posted a loss and General Electric Co., America’s biggest corporate, recorded a 42% fall in profit, missing analysts’ expectations and encouraging investors to eschew higher-yielding, or riskier, assets such as the kiwi dollar.

Consumer confidence in the world’s largest economy fell short of expectations, according to a University of Michigan survey, and stocks in the US declined last week.

Still, the weakness in growth sensitive currencies is expected to be a blip, and further weakness is predicted for the greenback this week with the majority of companies reporting on the S&P 500 beating analysts’ forecasts.

“The same fundamentals that drove the kiwi higher last week are still in play, with risk appetite at a 15 month high,” said Mike Jones, strategist at Bank of New Zealand. “There was a big sell off in kiwi interest rates, and that should give the currency another leg of support.”

The kiwi fell to 73.90 US cents from 74.37 cents last week, and dropped to 66.25 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.70. It declined to 67.10 yen from 67.83 yen last week and slipped to 80.57 Australian cents from 80.75 cents. It eased to 49.50 euro cents from 49.93 cents on Friday.

Jones said the currency may trade between 73.50 US cents and 74.90 cents today, with interest rates the main driver of the currency.

Reserve Bank of Australia Assistant Governor Philip Lowe will give a speech this afternoon, and will probably be the highlight of the day. Still, Governor Glenn Stevens’ laid his cards on the table last week, and BNZ’s Jones doesn’t anticipate any surprises in the speech.

The pound extended its gains from last week after comments by Bank of England officials that the central bank’s quantitative easing programme is working, and Jones predicts the British currency will extend its gains throughout the week. The kiwi fell 45.22 pence from 45.48 pence last week.

Businesswire.co.nz

Comments from our readers

No comments yet