Dollar holds near 71 cents as Wall St slips from 11-month high

Friday 18th September 2009

The New Zealand dollar held near a 13-month high as stocks on Wall Street slipped and Bank of Japan Governor Masaaki Shirakawa said a strong yen may benefit the Japanese economy in the long run.

The Standard & Poor’s 500 index edged down 0.3% amid concern stocks have run too hot and hard, pushing benchmark indexes to an 11-month high. The greenback is trading near its weakest in 12 months against the euro amid speculation the world’s biggest economy has emerged from recession this quarter, stoking investors’ appetite for risk.

The number of Americans applying for jobless benefits unexpectedly fell to 545,000 last week, according to Labor Department figures, while the Federal Reserve Bank of Philadelphia’s general economic index more than tripled to 14.1 this month, from 4.2 in August. With US borrowing costs low, the greenback is now jostling with the yen as a favourite currency for the carry trade.

The kiwi dollar “at the moment is being driven by US economic fundamentals,” said Philip Borkin, economist at ANZ National Bank. The trend of US dollar weakness, as investors seek higher yields and riskier assets, “is still intact,” he said.

The New Zealand dollar bought 71.05 US cents, down from as much as 71.58 cents yesterday, the highest since August 2008. The trade-weighted index, or TWI, slipped to 64.58 from 64.87 late yesterday.

Borkin says the kiwi may trade in a range of 70.50 US cents to 71.20 cents today.

The kiwi slipped to 64.66 yen from 64.96, having initially weakened late yesterday after BOJ Governor Shirakawa’s comments and after Finance Minister Hirohisa Fujii said a weak yen isn’t necessarily good the Japan’s export economy.

Borkin said there are “tensions” in foreign exchange markets as the yen’s status as carry traded currency fades in favour of the greenback.

The London interbank offered rate, or Libor, for three month dollar loans has sunk to just 0.29%, having dipped below the yen rate last month for the first time since 1993. The yen rate was last at 0.35%. The kiwi dollar fell to 48.19 euro cents from 48.51 cents yesterday.

Against the Australian dollar, the local currency fell to 81.40 cents from 81.57 cents.New Zealand economic fundamentals remain relatively weak.

Government figures next week are expected to show the economy shrank 0.4% in the second three months of the year, pushing the recession into its sixth, and possibly last, quarter. The economy shrank 1% in the first quarter.

Businesswire.co.nz

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