Dollar may fall on renewed signs of US economic weakness

By Paul McBeth

Thursday 16th April 2009

The New Zealand dollar, little changed today, may fall amid further signs of weakness in the US economy, eroding optimism for high-yielding, or riskier, assets.

US production contracted at a faster-than-expected rate, sliding 1.5% in March, and the annual consumer price index fell 0.4%, well below forecast. Wall Street ignored the data, with the Dow Jones Industrial Average gaining 1.4% as Procter & Gamble Co. announced it would increase its dividend. UBS AG, Switzerland's largest bank, plans to shed another 7500 workers after it posted a first-quarter net loss of almost 2 billion francs.

The recent data from the US has bulls "questioning their optimism and questioning the recovery." said Imre Speizer, currency strategist at Westpac Banking Corp. The currency "could be choppy until earnings season is over."

The kiwi gained to 58.14 US cents from 57.83 cents yesterday, and rose to 57.80 yen from 57.26 yen. It slumped to 79.72 Australian cents from 80.24 cents yesterday, and increased to 43.96 euro cents from 43.62 cents.

Speizer said the currency may trade between 57.40 US cents and 58.60 cents today, and will probably face more pressure on the downside. Westpac holds the view that the kiwi will fall lower, but it will need a major event to act as a catalyst, he said.

Investors will be closely watching the data out of China today, as much of the recent optimism has predicated on an early Chinese recovery lifting the world out of recession. The market expects China's first-quarter gross domestic product to grow 6.2% and industrial production to expand 6.3% year-on-year in March, said Danica Hampton, currency strategist at Bank of New Zealand.

Meanwhile, US Treasury Secretary Timothy Geithner backed off from comments he made in January accusing China of currency manipulation.

The yuan continued to be "undervalued", no country "met the standards" for illegal manipulation from July to December, according to the Treasury report on foreign-exchange policies since Giethner became secretary. At his confirmation hearings, he told a Senate panel "President Obama - backed by the conclusions of a broad range of economists - believes that China is manipulating its currency."

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