Kiwi bounces along in narrow range

Tuesday 17th May 2011

The New Zealand dollar exchange rate against the greenback bounced along in a narrow range after slipping overnight.

From US78.44c against the greenback at 5pm yesterday, the kiwi slumped to a five-week low near US77.50c before regaining some lost ground to be at US78.17c at 8am today, and finished the day little changed: US78.18c at 5pm.

The overnight drop - against a backdrop of declining global commodity prices and a tick up in global risk aversion, according to BNZ strategist Kymberly Martin - followed a consistent decline since last Friday's peak of US74.85c.

The NZ dollar also tumbled from 0.5564 euro at 5pm yesterday - reaching a one-week low around 0.5490 euro during the overnight session - but clawed back a little ground to be 0.5517 euro at 5pm today.

The euro jumped from seven-week lows against the US dollar as a European Union meeting showed support for debt-burdened countries, lifting demand for the single-currency after last week's sharp sell-off.

Melbourne currency strategist Ben Potter said that overnight comments from German Chancellor Angela Merkel that a restructuring of debt by any eurozone country before 2013 would be 'incredibly' damaging to the currency's credibility saw traders cover short euro positions, pushing it higher against the US dollar.

The Australian dollar held up somewhat better despite the weak commodities backdrop, but Potter, noted speculation that the Aussie exchange rate against the US dollar was vulnerable to further downside pressure given its high correlation to risk appetite and commodities as well as the growing concerns as to the health of the domestic economy.

"There are many very well respected business leaders commenting on the fragility of the Australian economy and warning against further interest rate hikes," he said.

The Aussie was at US$1.0593 at 5pm, compared with US$1.0551 at the same time yesterday.

The NZ dollar fell to A73.80c at 5pm against the aussie, from A74.32c at the same time yesterday, and was at 63.44 yen from 63.44 yen at the same time yesterday.

The trade-weighted index dropped to 67.85 from 68.23.

NZPA

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