Dollar eases as Wall Street stocks fall

Wednesday 30th September 2009

The New Zealand dollar eased as investors became averse to riskier assets offering higher yields after stocks on Wall Street fell on weaker than expected consumer confidence data, while the Russian central bank reaffirmed it will retain its current level of US dollar holdings.

The Conference Board’s consumer confidence index unexpectedly fell to 53.1 and the board’s measure of employment showed Americans are finding it harder to find work.

The Dow Jones Industrial Average declined 0.5% after the survey came in well below forecasts, and underscored the fragility of the recovery in the world’s largest economy.

The greenback gained on increased risk aversion, underpinned when Russia’s central bank said it will keep its share of foreign reserves held in US Treasuries at around 30%.

“Not only do we think the chatter about central bank diversification away from USD reserves is overblown, but investors have got overly optimistic on the strength and timing of the global recovery,” said Danica Hampton, currency strategist at Bank of New Zealand.

“If this week’s economic news fails to justify the upbeat global outlook currently priced into markets, look out for a correction in equities and a rebound in the USD.”

The kiwi fell to 71.44 US cents from 71.91 cents yesterday, and declined to 65.19 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.59. It slipped to 64.41 yen from 64.55 yen yesterday, and decreased to 49.00 euro cents from 49.31 cents. The kiwi dropped to 81.97 Australian cents from 82.32 cents yesterday.

Imre Speizer, markets strategist at Westpac, said the currency may trade between 71.20 US cents and 72.20 cents today as it remains bound in its current range while traders wait for US employment data out on Friday. “The sentiment is that it could surprise on the upside, and that would be positive for the kiwi,” he said.

The National Bank Business Outlook, a survey of firms’ expectations about the economy that correlates with the Quarterly Survey of Business Opinion which is followed by the central bank, will probably show confidence improved this month, Speizer said.

Australian retail sales probably climbed 0.5% last month, according to a Reuters survey. If the data continues to follow the positive trend across the Tasman, it will add to the likelihood of an early interest rate hike by the Reserve Bank of Australia in November.

RBA Governor Glenn Stevens this week told policy makers that normal settings need to be resumed in the “recovery phase” and that interest rates have to rise from their unusually low levels before they create imbalances in the economy.

Businesswire.co.nz

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