Dollar hits 11-month high

Monday 24th August 2009

The New Zealand dollar hit a new 11-month high as a surge in US housing data renewed optimism the global economy is on track to recover, encouraging investors to seek higher-yielding, or riskier, assets.

Existing home sales in the US jumped 7.2% last month to 5.24 million, well above the 2.1% gain predicted by economists, boosting stocks on Wall Street with the Standard & Poor’s 500 index reaching a new high for the year.

Federal Reserve Chairman Ben Bernanke told central bankers at the Fed’s annual conference in Wyoming economic activity is “leveling out, both in the US and abroad, and the prospects for a return to growth in the near term appear good.”

The Australian dollar gained, helping lift the kiwi, after policy makers announced they will remove withholding tax on federal government bonds.

“The US dollar was soft across the board on the US housing data,” reversing the recent trend where the greenback’s gained on better data, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of America.

“The Australian government taking withholding tax off government bonds boosted the Aussie, and the kiwi was dragged along with it.”

The kiwi climbed to 68.30 US cents from 67.67 cents last week, and jumped to 63.46 on the trade-weighted index, or TWI, a measure of the currency versus a basket of five trading partners, from 62.90. It increased to 64.45 yen from 63.47 yen last week, and advanced to 81.70 Australian cents from 81.41 cents. It rose to 47.64 euro cents from 47.29 cents on Friday.

Australian Treasurer Wayne Swan announced plans to remove interest withholding tax on federal bonds to make them more attractive to foreign investors as the government prepares to increase sales. The removal to the 10% tax on bond coupon payments brings Australia into line with most other nations.

Kelleher said the currency may trade between 68 US cents and 68.50 cents today as it follows sentiment out of China, which is “dominating” attitudes on the kiwi.

The Chinese government is expected to tighten capital requirements for banks in a bid to stem lending and cool the economy, according to Bloomberg report.

“The tightening of bank lending wasn’t denied” by the Chinese government, Kelleher said.

Data showed a pick-up in European manufacturing, encouraging investors to sell their holdings in “safe-haven” currencies such as the greenback and yen.

Still, European Central Bank Jean-Claude Trichet told bankers at the Fed conference that he was “a little bit uneasy” about the renewed optimism that things were returning to normal.

Businesswire.co.nz

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