Dollar gains as Wall Street ends July on a high

Monday 3rd August 2009

The New Zealand dollar gained as stocks on Wall Street ended the best month of July in 20 years as second quarter earnings exceeded forecasts, while a milder-than-expected contraction in US GDP stoked appetites for higher-yielding, or riskier, assets.

The Dow Jones Industrial Average climbed 8.6% last month as better-than-expected corporate earnings buoyed sentiment the global economy may resume growing in the second half of the year.

The world’s largest economy shrank a milder-than-expected1% prompting investors to eschew the relative safety of the greenback in favour of higher-yields. The Dollar Index, a measure of the US dollar versus a basket of six currencies, slipped 1.3% to 78.31, the lowest level since September last year.

“There was massive selling of US dollars across the board on the strength of July’s equity markets,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

“The US GDP was better than expected, but the revisions were worse, so it kind of balanced out.”

The US economy contracted 6.4% in the first three months of the year, the largest drop since 1982.The kiwi gained to 66.03 US cents from 65.51 cents on Friday, and was little changed at 61.38 on the trade-weighted index, or TWI, a measure of the currency versus the greenback, Australian dollar, euro, pound and yen, from 61.36.

It slipped to 62.52 yen from 62.67 yen last week, and dropped to 46.26 euro cents from 46.44 cents. It slid to 78.69 Australian cents from 79.18 cents last week.

Kelleher said the currency may trade between 65.50 US cents and 66.50 cents today, and if it manages to break the topside, could push higher.

“The base just keeps going up” as the US dollar remains weak, he said.

Rising unemployment may weigh on the currency this week with government data expected to show the jobless rate rose to 5.6% in the second quarter, the highest level in seven years.

Businesswire.co.nz

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