Dollar holds above 64 US cents as China talks down greenback

Monday 29th June 2009

The New Zealand dollar held above 64 US cents as the Chinese central bank renewed calls for a new world reserve currency, sapping demand for the greenback.

The People’s Bank of China said the dominance of one currency “has intensified the concentration of risk and the spread of the crisis,” but avoided explicitly naming the greenback. It suggested the International Monetary Fund’s unit of account was a suitable candidate for the reserve currency. The comments sapped demand for the U.S. dollar, which slipped to 79.90 from 80.65 on the Dollar Index, a measure of the greenback versus a basket of six major currencies.

The US dollar slipped on “China saying the world currency is not too good” and floating the prospect of a replacement, said Imre Speizer, currency strategist at Westpac Banking Corp. “The Aussie and kiwi got stuck and went sideways” as investors supported the euro rather than seek higher yields, he said, using the colloquial names for the trans-Tasman currencies.

The kiwi dollar was little changed at 64.53 US cents from 64.52 cents last week, and slipped to 60.74 on the trade-weighted index, or TWI, a measure of the currency versus the Australian dollar, US dollar, yen and euro, from 60.83.

It dropped to 61.36 yen from 61.80 yen on Friday in New York, and was little changed at 45.85 euro cents from 45.84 cents. It declined to 79.85 Australian cents from 80.06 cents last week.

Speizer said the currency may trade between 64.30 US cents and 64.90 cents today, and may find some short-lived support on a better-than-expected trade balance for May when Statistics New Zealand releases its data today. There should be a $350 million surplus, according to a Reuters survey.

As the month draws to a close, more attention is being paid to the $4.6 billion maturity of uridashi and eurokiwi bonds in July.

On Friday, Toyota Finance Australia announced an issue next month worth some $400 million of New Zealand dollar-denominated bonds, slightly less than half the $879 million the company has maturing on July 27.

Speizer said the Toyota announcement took total issuance up around $600 million for July, and expects around half the total value to be rolled over in New Zealand denominations.

Businesswire.co.nz

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