Dollar holds near seven-month high

Monday 15th June 2009

The New Zealand dollar held near a seven-month high against the euro after data from the region showed manufacturing remains in a slump, driving the currency lower against the greenback.

The Dollar Index, a measure of the US dollar versus six of its major trading partners, rose 0.1% to 80.13 after weaker-than-expected manufacturing data in the Euro-zone raised concerns about the health of the region’s economy.

Japanese finance minister Kaoru Yosana said in an interview in Tokyo that he had “complete trust” in US Treasurer Timothy Geithner’s view a strong US dollar was fundamental to the American economy, and that his confidence in US debt was “unshakeable.”

Russian finance minister Alexei Kudrin said it was “too early” to consider an alternative to the greenback as reserve currency.

“In the very long run, we’ll see the US dollar lose its importance as the world currency, but any move will be very gradual,” said Philip Borkin, economist at ANZ National Bank. With little news domestically this week, “we’ll be watching equity markets and looking at comments from policy makers” to lead the New Zealand currency, he said.

The kiwi advanced to 45.69 euro cents from 45.55 cents in New York on Friday. It was little changed at 63.99 US cents from 63.95 cents last week, and gained to 60.58 from 60.48 on the trade-weighted index, or TWI. It increased to 62.96 yen from 62.79 yen last week, and slipped to 78.76 Australian cents from 78.80 cents.

European industrial production posted a record slump in April from a year earlier on waning demand for the region’s goods. Output fell 1.9% from March and tumbled a greater-than-expected 21.6% from a year earlier, according to the European Union’s statistics office in Luxembourg said today.

Production of durable consumer goods fell 22.4% and output of capital goods tumbled 26.7%, the statistics office said. Europe took $6.4 billion of New Zealand’s exports in the 12 months through April, up 8% from the previous year.

Borkin said the kiwi currency may trade between 63.65 US cents and 64.85 cents in a “pretty flat type of range.”

Finance ministers from the eight richest nations in the world met in Italy over the weekend to discuss how to best prepare for economic recovery as the global downturn shows signs it has abated.

Danica Hampton, currency strategist at Bank of New Zealand said the US dollar will eventually “break lower” but may have further room to consolidate in the near term.

“We will probably need to see a reversal of last week’s US yield curve flattening to see the US dollar weakness resume,” she said.

The difference in yields between two and 10-year Treasuries widened to 252 basis points from 160 basis points at the start of the year.

Businesswire.co.nz

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