NZ dollar rises as greenback weakens on US deflation fears

Thursday 18th November 2010

The New Zealand dollar rose after weaker-than-expected inflation figures in the US offset concern about Europe's sovereign debt crisis and policy tightening in China, driving down the greenback.

The US dollar fell against most major currencies after data showed America's Consumer Price Index for October rose 0.2%, undershooting forecasts of 0.3%. The Dollar Index, a trade-weighted measure of the US dollar, falling to 79.04 from 79.21. The CPI figures bring the annual inflation rate in the US, excluding energy and food, to 0.6% - the lowest since records began in 1957. The European sovereign debt concerns continued to hang over the market standoff between euro zone countries and Ireland on a possible bailout continued, while in China's Premier confirm his country is looking at steps to restrain rising inflation pressures.

"The sharp drop in inflation helped to stoke mounting deflation fears in the US," said Mike Jones, markets strategist for Bank of New Zealand. "Markets are having to weigh things up, with the situation in Europe not looking too good, so it's a game right now of who should have the weakest currency."

The kiwi rose to 77.7 US cents from 76.55 cents late yesterday, and rose to 69.24 on the trade-weighted index of major trading partners’ currencies from 68.93. It rose against the Australian dollar to 78.57 Australian cents from 78.53 cents yesterday, and rose to 64.14 yen from 63.83 yen. It rose to 56.92 euro cents from 56.70 cents yesterday, and advanced to 48.44 pence from 48.19. pence.

On the cross rates, Jones said traders are focusing the kiwi-sterling, which trading near 30 year highs, and is expected to break through the 50 pence mark, with similar winds supporting the kiwi-euro cross.

He said he expects the market to be subdued, with the New Zealand dollar trading between a range of 77.50 US cents and 76.80 cents.

Businesswire.co.nz

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