Dollar holds above 68 cents as commodity prices rise

Tuesday 25th August 2009

The New Zealand dollar held above 68 cents for a third day, as gains in commodity prices underpinned currencies of resource producers and optimism remained for a revival in the global economy.

Crude oil briefly touched a 10-month high of US$74.71 a barrel in New York and reached an 11-month high. The Reuters/Jefferies CRB Index climbed almost 1% in New York.

Still, stocks on Wall Street pared their gains, with the Standard & Poor’s 500 slipping 0.1% to 1025.57 after SunTrust Banks Inc. said lenders face more credit losses in 2010 while commercial real estate demand may remain weak.

The S&P 500 has climbed to a 10-month high, helped by signs of revival in the US economy and upbeat comments on global growth from Federal Reserve chairman Ben Bernanke at a Fed retreat over the weekend.

“With little in the way of clear direction coming from economic data or global equity markets, we suspect some consolidation is in order for the major currencies,” said Danica Hampton, currency strategist at Bank of New Zealand.

“Looking ahead, while investors remain convinced the global economy is on the road to recovery and risk appetite remains buoyant, we’d expect the USD to remain heavy.”

The kiwi slipped to 68.40 US cents from 68.51 cents yesterday, and was little changed at 63.62 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 63.67 yesterday. It slipped to 64.69 yen from 64.97 yen yesterday, and dropped to 47.85 euro cents from 47.91 cents.

The kiwi dollar recently traded at 81.66 Australian cents from 81.57 cents yesterday and has advanced 5.3% against its trans-Tasman counterpart from its low in May.

Still, the New Zealand dollar may recede against the Australian dollar as speculation grows that the Reserve Bank of Australia will begin lifting rates before the end of the year as economic growth picks up while its New Zealand counterpart holds rates unchanged.

New Zealand has higher unemployment, lower interest rates and has probably been in recession for six quarters, and the support for the kiwi dollar against the Australia is unjustified, according to Philip Borkin, an economist at ANZ National Bank.

“It’s only a matter of time before it heads lower - we’ll be watching this cross closely,” Borkin said. “When we see the RBA say it’s not far away from withdrawing stimulus and the RBNZ say it’s adamant it’s going to keep rates low” a move lower seems appropriate, he said.

Borkin predicts the cross will fall to around 77 Australian cents by the end of the year, but could tumble to early-1990s lows in the low- to mid-70 cents over a longer period.

Fears about the state of the UK economy helped stoke support for the kiwi against the pound, which rose to 41.93 pence, a 12-year high, and recently traded at 41.67 pence from 41.48 pence yesterday.

The Reserve Bank of New Zealand announces its inflation expectations for the third-quarter today, but with price control out of the central bank’s immediate focus, the release isn’t expected to cause any fluctuation on currency markets.

Businesswire.co.nz

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