Dollar slides as US housing data disappoints

Wednesday 21st October 2009

The New Zealand dollar slid below 75 US cents as stocks on Wall Street retreated on weaker than expected housing data, which encouraged investors to return to the relative safety of the greenback.

US housing starts gained 0.5% to an annual pace of 590,000 in September, 20,000 fewer than expected by economists, while producer prices fell 0.6% in the same month against a forecast of no change.

The Dow Jones Industrial Average fell 0.5% amid mixed earnings reports in the New York session. The Dollar Index, a measure of the greenback against a basket of five currencies, gained 0.4% to 75.59 as investors eschewed higher yields.

“Yesterday, the kiwi had a crack at making it to a new high and failed dismally,” making it more difficult for the currency in the US trading session, said Imre Speizer, markets strategist at Westpac Banking Corp.

“The housing news in the US and underlying strength in the U.S. dollar saw risk around the world get pushed down.”

The kiwi slid to 74.72 US cents from 75.21 cents yesterday and dropped to 66.93 on the trade-weighted index, or TWI, a measure of the currency against the greenback, euro, yen, pound and Australian dollar, from 67.18.

It declined to 67.71 yen from 67.92 yen yesterday, and eased to 81.06 Australian cents from 81.20 cents. It fell to 50.09 euro cents from 50.27 cents yesterday, and decreased to 45.68 pence from 45.86 pence.

Speizer said the currency may trade between 74 US cents and 75.50 cents today, and may be pushed around by the second-tier data out today.

Economists expect the net number of new migrants who entered the country last month will probably continue to gain, when Statistics New Zealand releases the data today.

“The market’s much priced in a continuation of the current trend – it would take a pretty big surprise either way to move the kiwi,” Speizer said. Growth in credit card billings in September will probably slow according to Mike Jones, strategist at Bank of New Zealand.

The Reserve Bank of New Zealand will release the data later today. The Reserve Bank of Australia is growing more concerned about the pace of inflation across the Tasman, and ANZ National Bank economists expect next week’s data will influence Governor Glenn Stevens’ next move in November.

“A read core inflation of 0.8% quarter-on-quarter next week would leave annual inflation at 3.5% year-on-year, well above the target band, and in our view would raise the risk that the RBA will move more aggressively on interest rates in the short term,” ANZ economists said in a report.

The RBA became the first G-20 country to hike rates this month when it boosted its target cash rate 25 basis points to 3.25%, raising expectations that New Zealand’s central bank Governor Alan Bollard will have to follow suit earlier than previously indicated.

AMP Capital Investors’ head of investment strategy Jason Wong yesterday told a media briefing he expects Bollard will begin lifting the official cash rate in March next year. Bollard can’t move any earlier because it would dent his credibility after saying rates will remain at or below the current level for an extended period, Wong said.

Businesswire.co.nz

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