Dollar falls as Wall St falters on grimmer outlook

Tuesday 16th June 2009

The New Zealand dollar fell after stocks on Wall Street faltered amid suggestions the world’s largest economy won’t revive as quickly as expected.

US stocks retreated as New York regional manufacturing shrank as sales fell and inventories declined, according to the Federal Reserve Bank of New York’s ‘Empire State’ index, and the International Monetary Fund predicted the US economy wouldn’t return to growth until next year.

The grimmer outlook stoked investor appetite for US Treasuries, pushing as yield on the 10-year note down three basis points to 3.72%, and boosted the greenback as investors became more risk averse.

The Dow Jones Industrial Average slipped 2.1%, trimming its gains this year to around 36%. The rally ran out of puff yesterday, though signs of a pull back were apparent on Friday in New York as trading volumes dwindled.

“Those equity rallies last Friday were the lowest volume since Christmas, and had all the hallmarks of breaking,” said Tim Kelleher, vice president of institutional markets and banking at Commonwealth Bank of Australia. “Equities could be facing a fortnight of correction” which should rally support for the greenback and push the kiwi lower, he said.

The kiwi sank to 63.01 US cents from 63.39 cents yesterday, and dropped to 60.18 on the trade-weighted index, or TWI, a measure of the currency against major partners, from 60.31. It slipped to 61.60 yen from 62.18 yen yesterday, and advanced to 79.21 Australian cents from 79.13 cents.

The currency was little changed at 45.68 euro cents from 45.66 cents yesterday.

Kelleher said the currency may trade between 62.50 US cents and 63.50 cents today as traders take a more bearish attitude to the markets. “Rallies on low volumes” aren’t sustainable, he said.

The euro sank to US$1.3787 from US$1.3871 yesterday as concerns about the state of the Euro-zone’s economy were exacerbated by figures showing employment in the region dropped 0.8% in the first three months this year.

Kelleher said Germany’s ZEW survey, a measure of the nation’s business confidence and direction of the economy, might add to the negative sentiment in the wider Euro-zone region when it its released on Tuesday in Europe.

The Reserve Bank of Australia will release the minutes of its last monetary policy meeting today, and Kelleher predicts they will show the bank is “reasonably cautious” in its outlook. The Australian dollar dropped to 79.39 US cents from 80 cents yesterday.

Businesswire.co.nz

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