Dollar slips on weaker US consumer confidence

Wednesday 29th July 2009

The New Zealand dollar slipped below 66 US cents as weaker-than-expected US consumer confidence encouraged investors to eschew higher yields in favour of the relative safety of the greenback and as investors await today’s business confidence survey and the central bank’s review of monetary policy tomorrow.

The Conference Board’s confidence index fell to 46.6 from 49.3 in June, worse than economists’ forecasts, as rising unemployment weighed on Americans’ sentiment to spend.

The Dollar Index, a measure of the greenback against six trading partners, rose 0.6% to 78.92. The National Bank’s Business Outlook survey, a leading indicator of business confidence, is expected to show New Zealand’s economy is continuing to improve, while economists predict the Reserve Bank will hold the official cash rate at 2.5% when it meets tomorrow.

“Consumer confidence was lower in the US” and that encouraged traders to support the greenback,” said Imre Speizer, currency strategist at Westpac Banking Corp. “People put a lot of strength in consumers driving the US economy,” and when that declines, so does investors’ appetite for higher yields, he said.

The kiwi dipped to 65.79 US cents from 66.16 cents yesterday, and dropped to 61.50 on the trade-weighted index, or TWI, a measure of the currency versus the Australian dollar, greenback, euro, yen and pound, from 61.60.

It sank to 62.25 yen from 62.70 yen yesterday, and increased to 79.56 Australian cents from 79.45 cents. It gained to 46.45 euro cents from 46.36 cents yesterday. Speizer said the currency may trade between 65.40 US cents and 66.35 cents today, with a bias to the downside.

The National Bank survey of business confidence will be the main point of interest for investors today, but will need to offer a big surprise for it to push the currency out of the range, Speizer said.

“The general feeling is that is should continue to improve, but a higher move may not move the markets” unless it’s something “humungous,” he said.

Central bank Governor Alan Bollard is expected to keep the OCR on hold tomorrow, but investors will be looking to for any hint of a movement away from the current easing policy, Speizer said. If Bollard gives a speech as upbeat as his Australian counterpart’s, it could lend support to the kiwi.

RBA Governor Glenn Stevens said there were optimistic signs in the Australian economy, and indicated he may raise interest rates before the unemployment rate peaked.

The number of new building consents issued in June will be released today by Statistics New Zealand, and could show a drop-off after May’s headline figure was bolstered by an increase in permits issued for apartments.

Businesswire.co.nz

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