NZ dollar heads for third monthly decline as U.S. dollar finds base

Tuesday 29th December 2009

The New Zealand dollar headed for its third straight monthly decline, having peaked above 76 U.S. cents in October, as the U.S. dollar climbs from its lows against the yen and euro and investors square up ahead of the New Year break.

The kiwi has slipped 1% this month and is unlikely to recoup those losses in the next two days after the rampant optimism through the middle of the year gave way to a bout of risk aversion. Traders pared back their exposure to higher yielding currencies in the lead-up to Christmas-New Year break. The Dollar Index, a measure of the greenback against a basket of six currencies, halted its year-long slide in December, and has surged 3.8% to 77.61 this month. The greenback reached a 14-year low against the yen and a 15-month low against the euro at the end of November.

“There’s not a lot of action with people focused firmly on the Christmas holiday period,” said Danica Hampton, currency strategist at Bank of New Zealand. “The market’s coming up to year-end and there’s a possibility that people may be squaring up their positions, but I suspect most of that’s been done based on the big moves in the U.S. dollar.”

The kiwi was unchanged at 70.80 U.S. cents and edged up to 64.77 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.74 yesterday. It increased to 64.82 yen from 64.79 yen yesterday and rose to 79.82 Australian cents from 79.76 cents. It slipped to 44.24 pence from 44.33 pence yesterday and was little changed at 49.19 euro cents from 49.20 cents.

Hampton said the currency may trade between 70.70 U.S. cents and 71.20 cents today and will probably follow Asian equity markets with little in the way of news expected this week.

“The market can be quite interesting with liquidity quite thin – if we have some news we could see some relatively large moves,” she said.

On Christmas Day, Japanese Prime Minister Yukio Hatoyama approved a record budget worth 92.3 trillion yen to help revive the flagging economy, and predicted the world’s second largest economy will grow 1.4% next year. Japan’s industrial production rose 2.6% in November and retail sales increased 0.2%. The Japanese currency was little changed at 91.56 yen per U.S. dollar from 91.49 yesterday.

Businesswire.co.nz

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