Dollar falls in subdued trade; greenback's status questioned

Monday 6th July 2009

The New Zealand dollar fell in subdued trading, as the Fourth of July holiday in the US reduced liquidity and traders weighed the prospects of a further challenge to the reserve status of the greenback by emerging economies this week.

India joined the chorus of emerging economies questioning the status of the greenback over the weekend. India, China and Brazil have been invited to attend the Group of Eight meeting of the largest developed economies this week and currency traders are looking for more comments this week.

With US markets closed for Fourth of July celebrations on Friday, global sentiment was subdued as data out of Europe showed a further contraction in the service sector. Services activity in the Euro-zone fell to 44.7 last month from 44.8 in May, according to a Markit Economics report on Friday.

“Liquidity was pretty thin with the US markets closed” and the European data didn’t move currencies much, said Philip Borkin, economist at ANZ National Bank. Emerging economies have made “plenty of comments and we know where a lot of nations sit.”

The kiwi slipped to 62.82 US cents from 63.30 cents last week, and dropped to 59.58 on the trade-weighted index, or TWI, a measure of the New Zealand dollar versus a basket of five currencies, from 59.93. It slid to 60.36 yen from 60.69 yen last week, and declined to 44.97 euro cents from 45.22 cents. It fell to 78.91 Australian cents from 79.29 cents last week.

Borkin said the currency may trade between 62.54 US cents and 63.34 cents, and faces a lot of support at the bottom of the range. If the kiwi manages to break below 62.50 cents, it could fall lower, although he doesn’t expect it would get below 60 cents.

Another small uridashi bond issuance has helped offset the abnormally large value of maturities this month, and Borkin said there’s the potential to see more of the bonds getting rolled over.

Municipality Finance will launch a $60 million bond at the end of the month, while Toyota Motor Credit Corp. hasn’t finalised the details of its latest issue.

Tomorrow will be a big day for the New Zealand and Australian dollars with the New Zealand Institute of Economic Research releasing its Quarterly Survey of Business Opinion, which is expected to show a reasonably stable headline figure, and the Reserve Bank of Australia’s review of the target cash rate. Economists predict the Australian central bank will keep its benchmark interest rate at 3%.

Businesswire.co.nz

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