Dollar tumbles as US jobs data stokes demand for greenback

Monday 8th June 2009

The New Zealand dollar tumbled as better-than-expected employment data in the US stoked demand for the greenback amid signs the world’s largest economy may be on the road to recovery, and its central bank could lift interest rates as early as this year.

The Dollar Index, a measure of the US dollar versus a basket of six currencies, climbed to 80.67 on Friday in New York from 79.47 the previous day after payrolls in the US fell by 345,000 last month, less than the 520,000 decline forecast in a Reuters survey.

Comments by several Federal Reserve officials stoked optimism among investors that the Federal Open Market Committee may consider easing monetary stimulus as early as this year. US Treasuries slipped on the speculation, with shorter-dated yields gaining on the prospect of higher interest rates.

“This is the first time the US dollar’s had a positive reaction to positive news” in some time, said Philip Borkin, economist at ANZ National Bank. “We may be reaching a new base for the greenback.”

The kiwi sank to 62.57 US cents from 63.64 cents last week, and gained to 61.75 yen from 61.59 yen. It dropped to 78.70 Australian cents from 79.17 cents last week, and declined to 44.80 euro cents from 44.91 cents.

Borkin said the currency may trade between 61.80 US cents and 62.95 cents today as the surging US dollar encourages investors to eschew higher-yielding assets like the kiwi.

The New Zealand dollar’s 200-day moving average dropped back to the mid-58 US cents level, and Borkin said he wouldn’t be surprised to see the kiwi fall below 60 cents this week.

The weaker currency will comfort the Reserve Bank, which reviews the official cash rate this week. The central bank would’ve been concerned at the high levels of the currency, which would hinder an export-led recovery for the nation’s economy that fell into its first recession in a decade last year.

Economists are divided over whether Governor Alan Bollard will hold the OCR at 2.5% or cut it by 25 basis points.

Businesswire.co.nz

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