Dollar falls on concerns greenback' weakness overstated

Thursday 8th October 2009

The New Zealand dollar fell as investors rekindled their support for the greenback amid concerns the world’s reserve currency has fallen too far, too fast and Japan’s finance minister raised the prospect of intervening in currency markets.

The Dollar Index, a measure of the US dollar against a basket of six currencies, climbed 0.4% to 76.48 as the Dow Jones Industrial Average fell 0.1% ahead of third quarter earnings season.

Results kick off with aluminium producer Alcoa. Investors eschewed higher-yielding, or riskier, assets after Japanese Finance Minister Hirohisa Fujii said he may intervene in foreign exchange markets if they become “abnormal.”

“A late rally in the US dollar, spurred by intervention talk by the Japanese Finance Minister weighed on the New Zealand dollar,” said Mike Jones, strategist at Bank of New Zealand.

“We do not expect US dollar weakness to continue at the same pace over the coming months – officials are becoming increasingly vocal on the need for a strong dollar.”

The kiwi dropped to 73.50 US cents from 73.89 cents yesterday and declined to 66.49 on the trade-weighted index, or TWI, a measure of the currency against the euro, pound, Australian dollar, greenback and yen, from 66.70. It slipped to 65.09 yen from 65.18 yen yesterday, and eased to 50.09 euro cents from 50.20 cents. It was little change at 82.58 Australian cents from 82.64 cents yesterday.

Imre Speizer, markets strategist at Westpac Banking Corp., said the currency may trade between 73.20 US cents and 74 cents today, and will continue to test the upper range. Still, the cap has historically been “very sticky” and the kiwi may struggle to break through without some external event.

As the global recovery sets in, investors are returning to the market, with about US$17.5 billion injected mainly into equities. Some US$3.5 trillion worth of funds was stripped from the market and parked in non-performing assets when it appeared as though the financial system was about to collapse last year.

Deutsche Bank cut its 2010 dollar-euro forecast, predicting the US dollar will weaken to US$1.550 per euro in the first quarter before strengthening to US$1.40 by the end of 2010. It had previously predicted the greenback would strengthen to as much as US$1.15 per euro.

Australia is scheduled to release its obless data today, which is expected to show the unemployment rate rose to 6% last month, according to a Reuters survey.

New Zealand’s largest trading partner avoided a recession in the global economic downturn, and its central bank was the first G-20 nation to begin hiking interest rates earlier this week when it lifted its benchmark rate from a 50-year low to 3.25%. With monetary policy tightening underway in Australia, the jobless rate will likely dictate how fast Governor Glenn Stevens will go.

Businesswire.co.nz

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