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Dollar may pare gains from month-high

Thursday 17th June 2010

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The New Zealand dollar, little changed today, may pare its gains against the greenback after economic data painted a mixed picture of the US economy and speculation swirled about a bail-out package for debt-stricken Spain.  

Stocks on Wall Street had a tepid reaction to mixed data showing weaker-than-expected housing starts and new building permits, while industrial production figures beat forecasts. The Dow Jones Industrial Average rose 0.1% and the Standard & Poor’s 500 Index fell 0.1%. Reports that the European Union, International Monetary Fund and US.

Treasury were putting a credit line together for Spain, later denied by government officials, reignited fears about a deepening sovereign debt crisis in Europe. Investors later took some heart from oil company BP Plc.’s agreement to put up US$20 billion into a fund to cover damages from the oil spill in the Gulf of Mexico.  

“The data was mixed, and the events cancelled each other out – market sentiment just ran out of momentum,” said Imre Speizer, market strategist at Westpac Banking Corp.

“The (kiwi’s) upward momentum has stalled, though it hasn’t declined – after nine days on the trot it’s due for a minor pullback.” 

The kiwi edged up to 69.75 US cents from 69.68 cents yesterday, and was little changed at 67.37 on the trade-weighted index of major trading partners’ currencies from 67.31. It slipped to 63.75 yen from 63.87 yen yesterday, and was up to 80.75 Australian cents from 80.58 cents. It recently traded at 56.66 euro cents from 56.63 cents yesterday, and rose to 47.29 pence from 47.04 pence.

The kiwi dollar’s relative strength index, or RSI, rose above 70 yesterday, a level that some technical analysts say means a security is poised to fall. The RSI was at 68.5 today, according to Reuters data. 

Speizer said the currency may trade between 69 US cents and 70 cents today, with a bias toward the bottom of the range over the next couple of days. Still, investor sentiment is generally upbeat, and Speizer predicts the kiwi will try to rise to 71 cents next week.  

The ANZ Roy Morgan Consumer Confidence survey out today will probably mirror yesterday’s Westpac McDermott Miller release that showed people are more optimistic about the future and are getting ready to start spending again.  

Speizer said yesterday’s survey was a “significant surprise on the upside” that didn’t elicit a reaction from the market, and he a similar response to the ANZ Roy Morgan report.

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