NZ dollar holds above 71 US cents amid unwinding of short greenback positions

Monday 21st December 2009

The New Zealand dollar held above 71 U.S. cents as investors continue to unwind their short positions in the greenback to lock in gains from higher-yielding, or riskier, assets that have surged from their lows earlier this year.

Short positions, where investors sell an asset in the expectation they can buy it back at a cheaper price, in the U.S. were slashed by 75% to some 45,000 contracts since the start of December, according to a U.S. Commodities Futures Trading Commission report. The Dollar Index, a measure of the greenback against a basket of five currencies, rose 0.3% to 77.77, and was supported by reports that Iranian troops had entered a disputed oil-field in Iraq.

“With speculative market positioning now looking a bit more balanced, currency markets may settle down a bit this week,” said Danica Hampton, senior currency strategist at Bank of New Zealand. “However, the fundamental backdrop remains relatively supportive for the NZD” with third quarter gross domestic product and current account data likely to show an improving economy, she said.

The kiwi slipped to 71.08 U.S. cents from 71.16 cents last week and edged down to 64.64 on the trade-weighted index, or TWI, a measure of the currency against a basket of six trading partners, from 64.81. It rose to 64.26 yen from 64.13 yen on Friday, and declined to 79.61 Australian cents from 80 cents. It increased to 49.56 euro cents from 49.44 cents last week, and gained to 44 pence from 43.87 pence.

Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia, said the kiwi tested the 70.50 U.S. cents level for the third or fourth time over the weekend, and it “needs to break 70 to get going lower.” He expects it will trade between 70 cents and 72.50 cents today.

Investors ignored upbeat German business confidence, and focused on news the European Central Bank increased its expectations for bank writedowns in the Euro-zone to 553 billion euros from 488 billion euros predicted in June.

Traders have been switching out of the euro and “putting their money into Swiss safe havens” as they exit higher yielding investments, Kelleher said. The kiwi sank to 0.7386 Swiss francs from 0.7406 francs on Friday.

Businesswire.co.nz

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