Dollar edges lower as BRIC nations tone down stance on US$

Wednesday 17th June 2009

The New Zealand dollar edged lower after leaders of the four largest emerging economies toned down their concerns about the greenback’s status as the world’s reserve currency, while Wall Street pushed lower on fears consumer spending may have stalled.

The leaders of Brazil, Russia, India and China, known as the BRIC economies, called for emerging and developing economies to have greater representation on international financial institutions at their first summit, but avoided questioning the status of the US dollar.

Before the meeting, the Russian President’s top economic adviser said the leaders would discuss measures to reduce their dependency on the greenback. The Standard & Poor’s 500 Index slid 1.3% as a drop in profit at Best Buy Co., the world’s largest electronics chain, lifted fears consumer spending has faltered.

The focus on what the BRIC nation’s said shows “emerging nations have more sway” on international markets, said Philip Borkin, economist at ANZ National Bank. Markets are “so choppy no-one has confidence in anything.”

The kiwi sank to 62.86 US cents from 63.40 cents yesterday, and dropped to 59.84 on the trade-weighted index, or TWI, a measure of the currency versus a basket of its major trading partners, from 60.21. It dropped to 60.57 yen from 61.37 yen yesterday, and declined to 79.26 Australian cents from 79.40 cents. The currency fell to 45.42 euro cents from 45.65 cents yesterday.

Borkin said the currency may trade between 62.65 US cents and 63.65 cents today and it could be “another negative day” for the kiwi if Asian bourses follow Wall Street lower. The BRIC summit came after Brazil, China and Russia announced plans to shift some of their foreign reserves into International Monetary Fund bonds.

The four emerging economies have combined reserves of some US$2.8 trillion, while China is the largest holder of US Treasuries.

Investor appetite for high-yielding, or riskier, assets declined as the Chicago Board Options Exchange Volatility Index, or VIX, which measures volatility on the S&P 500, advanced 6.1% to 32.68, its highest level since May 15.

The aversion to risk stoked demand for Treasuries, pushing down the yield on 10-year notes by 7 basis points to 3.65%, while the yield on two-year Treasuries declined 7 basis points to 1.18%. The US Dollar Index, a measure of the greenback versus six trading partners, gained 0.3% to 80.72.

Businesswire.co.nz

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