Dollar slips below 71 US cents, may extend decline

Monday 21st September 2009

The New Zealand dollar slipped below 71 US cents and may extend its decline as speculation the G-20 will discuss exit strategies from their stimulus schemes dims investors’ appetite for higher-yielding assets in a week when some Asian markets are closed.

The kiwi dollar may halt its 10-week rally against the greenback as support for the world’s reserve currency is magnified by illiquid markets amid public holidays in Japanese and Singaporean markets for much of this week.

The Dollar Index, a measure of the greenback versus a basket of six currencies, climbed 0.5% to 76.45 from its 12-month low last Thursday. The US currency has come under pressure in recent months as burgeoning current account and fiscal deficits in the world’s largest economy has seen some Asian central banks diversified their holdings out of the greenback.

“If there’s to be a move lower in the kiwi, this week could be it with a lot of Asian markets on holiday,” said Philip Borkin, economist at ANZ National Bank. “The size of the pullback could see it go below 70 US cents.”

The kiwi slipped to 70.82 US cents from 71.08 cents on Friday in New York, and declined to 64.58 on the trade-weighted index, or TWI, a measure of the currency versus a basket of trading partners, from 64.73. It dropped to 64.67 yen from 64.89 yen last week, and fell to 81.63 euro cents from 81.72 cents. It decreased to 81.63 Australian cents from 81.72 cents last week.

Borkin said the currency may trade between 70.40 US cents and 71.20 cents today.

Leaders from the Group of 20 nations meet in Pittsburgh this week and there’s a growing expectation they will indicate some movement is being made on organising exit strategies from the exceptional policy measures taken by governments and central banks in shoring up the world financial system following last year’s credit crisis.

At the same time, the Federal Open Market Committee will review interest rates in the US, and while markets aren’t predicting a shift in rates, they’ll be looking for more upbeat comments from the Fed. Chairman Ben Bernanke last week said the recession was probably over.

A glut of domestic second-quarter data will be released by Statistics New Zealand this week, with external migration and credit card billings out today. Gross domestic product, balance of payments, and consumer confidence will come out later this week and may add to evidence the worst recession in 30 years has abated.

Businesswire.co.nz

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