Dollar gains as Fed minutes weigh on greenback

Thursday 21st May 2009

The New Zealand dollar rose, holding above 60 US cents for a second day, with the greenback declining against most currencies after minutes of the Federal Reserve’s last policy meeting showed it considered printing more money.

US Treasury Secretary Timothy Geithner said there were signs the financial system was “starting to heal”, while the Federal Open Committee minutes revealed the Fed considered buying more treasuries when it reviewed its target interest rate last month.

The greenback slumped to its lowest level against the euro since January with the prospect of more quantitative easing likely to debase the world’s reserve currency. The London interbank offered rate, or Libor, for three-month loans in US dollars fell a further 4 basis points to 0.72%, while the Chicago Board Options Exchange volatility index, or VIX, fell to its lowest level since September last year.

The markets expected the Fed to discuss “an exit strategy” from quantitative easing “but they were looking at boosting the stimulus strategy,” said Imre Speizer, currency strategist at Westpac Banking Corp. “The US dollar was broadly weaker” as a result.

The kiwi gained to 60.52 US cents from 60.30 cents yesterday, and slipped to 57.36 yen from 57.78 yen. It was little changed at 78.12 Australian cents from 78.07 cents, and fell to 43.96 euro cents from 44.19 cents.

Speizer said the currency may trade between 60 US cents and 61 cents today with a slight bias to the downside after the Standard & Poor’s 500 Index fell 0.5% at the close of the market in New York.

The kiwi failed to break above the next technical level at 61.30 cents, and it’s too early to call it “bullish” in the longer term, he said.

Westpac has become the second bank to offer bonds under the government’s deposit guarantee scheme, lifting sentiment around the state of the New Zealand financial sector and the nation’s credit system with its three-year bond offer in US dollars. Bank of New Zealand is set to become the third with three- and five-year tranches of debt denominated in yen, Speizer said.

“It shows money is being put to work” in assets as safe as government bonds, but with higher yields, Speizer said.

Businesswire.co.nz

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