Dollar gains as indicators point to weaker US economy

By Paul McBeth

Wednesday 26th November 2008

The New Zealand dollar extended its gain for a third day as weak data in the US raised fears that the looming recession will be deeper than anticipated, overshadowing an US$800 billion package to improve liquidity and prompting a sell-off in the US dollar.

The US Commerce Department said gross domestic product dropped an annual 0.5% last quarter as household spending fell the most since 1980 and consumer spending, which accounts for over two-thirds of the economy, fell more than expected. US stocks erased earlier gains from the Federal Reserve�s package to give consumers easier access to credit as concern grew over falling computer sales.

�Weak US data didn�t help� investors sentiment for the US dollar, said Philip Borkin, economist at ANZ National Bank. The kiwi �depends on where the Dow closes � if it�s lower it sets the benchmark.�

The New Zealand dollar jumped to 54.62 US cents from 53.61 cents yesterday and rose to 52.09 yen from 51.61 yen. It was steady against the Australian dollar, falling to 84.07 cents from 84.08 cents yesterday, and rose to 41.89 euro cents from 41.66 cents.

Borkin said the kiwi will probably see some �choppy moves� in the short-term, and will likely trade between 53.85 US cents and 50.70 cents today.

More weak data out from the US pointed to house prices falling at an accelerated rate in September, with the S&P/Case-Shiller home-price index falling over 17% from a year earlier.

As part of the new aid package, the Fed allocated US$600 billion to buy and securities issued by Fannie Mae, Freddie Mac and Ginnie Mac.

The London interbank offered rate rose for a third day to 2.2% in a sign that governments are struggling to increase liquidity in the markets.

With the current volatility and threat of a deepening global recession, Borkin said appetite for higher-yielding, or riskier, assets like the New Zealand dollar has dwindled, and the medium term outlook is for it to go lower.

www.businesswire.co.nz

Comments from our readers

No comments yet