Dollar may fall as risk appetite dwindles

Monday 13th July 2009

The New Zealand dollar may fall as optimism for an early economic recovery fades amid reports at least 10 Eastern European nations require aid from the International Monetary Fund, sapping demand for higher-yielding, or riskier, assets.

The yen gained as investors eschewed higher yields in favour of relatively safe assets after unidentified IMF officials were reported as saying Eastern European nations have applied for loans.

US President Barack Obama told leaders on the final day of the Group of Eight nations summit that it was too early to begin unwinding stimulus with a full recovery “still a way off.” His views were echoed by IMF chief Dominique Strauss-Kahn.

“People are being more realistic” about the state of the global economy, said Tim Kelleher, vice president of institutional banking and markets. “An Asian central bank was selling euro for yen, with some bearish news that 10 European nations require IMF loans” and this flowed through to the kiwi, he said.

The kiwi rose to 62.74 US cents from 62.50 cents last week, and increased to 59.51 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 59.36. It was little changed at 57.95 yen from 57/.90 yen last week, and climbed to 80 Australian cents from 80.50 cents. It barely budged at 45.03 euro cents from 44.99 cents last week.

Kelleher said the currency may trade between 62.50 US cents and 63.10 cents today with May retail sales likely to show an increase of 0.5%. After the kiwi outperformed last week, he expects it will push lower this week.

The stoush between China and Rio Tinto, the mining company that turned down a buy-in offer from state-owned Chinalco, saw the Australian dollar slump 2% last week, while the kiwi “held its own,” he said.

With a glut of international data out this week including the release of the FOMC minutes, updates on Germany’s Zew survey of business confidence, and the US corporate earnings season continuing, the kiwi may be dragged lower if a rising tide of pessimism sets in, Kelleher said.

Businesswire.co.nz

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