Dollar holds as Wall St edges lower

Tuesday 11th August 2009

The New Zealand dollar held above 67 US cents as stocks on Wall Street edged lower on concerns that share prices were overcooked, while weakness in the euro and pound drove the kiwi up on a trade-weighted basis.

Stocks on Wall Street snapped a four-week rally amid concerns share prices had pushed past levels justified by their earnings, and boosted support for the greenback. The Dollar Index, a measure of the greenback versus six currencies, climbed 0.4% to 79.24.

The kiwi pushed above 63 on the trade-weighted index, or TWI, a measure of the currency versus a basket of five trading partners, for the first time since October 6, as Russia’s surprise rate cut on the weekend weighed on the euro and traders continued to avoid the pound after the Bank of England expanded its quantitative easing programme last week.

“The kiwi’s outperformed mightily on the crosses,” said Tim Kelleher, vice president of institutional markets and banking at Commonealth Bank of Australia.

“The Baltic Dry Index (a measure of international freight and shipping activity) was down last week and that’s a pretty good harbinger of commodity prices, so that’s going to put pressure on the Aussie dollar,” adding further support to the kiwi which doesn’t have the same exposure to hard commodities, he said, referring colloquially to the Australian dollar.

The kiwi slipped to 67.62 US cents from 67.66 cents yesterday and climbed to 63.33 on the TWI from 63.16. It edged up to 80.69 Australian cents from 80.35 cents yesterday, and declined to 65.76 yen from 65.80 yen. It pushed up to 47.83 euro cents from 47.67 cents yesterday.

Kelleher said the currency may trade between 67.30 US cents and 67.90 cents today as it remains underpinned by its strength on the cross-rates.

China releases data including retail sales, industrial production and trade balances today, and traders will be looking for any indicators of the state of the world’s fourth largest economy.

Danica Hampton, currency strategist at Bank of New Zealand, expects any sign of weakness to “take a toll on risk appetite” while any strength will encourage investors to seek higher yields.

Businesswire.co.nz

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