Dollar gains after US economy sheds jobs

Monday 9th August 2010

The New Zealand dollar gained after the US economy shed more jobs than expected last month, stoking fears of a potential double-dip recession and sapping investors' appetite for the greenback.

The world's biggest economy lost 131,000 jobs last month, twice as many as expected, compounding fears the US recovery is stalling.

The Federal Open Market Committee reviews the federal funds rate on Wednesday, and speculation is growing that the regulator will expand its quantitative easing programme.

The kiwi gained against the greenback, but lost ground on the crosses as high unemployment and weak dairy prices eroded confidence in New Zealand's economy.

"Concern about a double-dip recession for the US economy trumps everything at the moment," said Mike Jones, strategist at Bank of New Zealand.

"We suspect the US dollar will remain under pressure ahead of Wednesday morning's FOMC meeting, as reduced yield support and expectations of additional Fed stimulus measures take their toll."

The kiwi climbed to 73.29 US cents from 72.84 cents last week, and was little changed at 67.26 on the trade-weighted index of major trading partners' currencies from 67.23.

It fell to 62.5 yen from 62.69 yen on Friday in New York, and edged up to 79.63 Australian cents from 79.59 cents. It dropped to 55.11 euro cents from 55.26 cents last week, and declined to 45.48 pence from 45.93 pence.

Jones said the currency may trade between 72.50 US cents and 73.60 cents today as it faces upside risk ahead of the Fed meeting later this week. On a trade-weighted basis, he expects the kiwi to remain under pressure as the outlook for the local economy stays muted.

The US jobs data sapped investors' appetite for higher-yielding, or riskier, assets, and stocks on Wall Street declined on Friday, with the Standard & Poor's 500 Index down 0.4%.

The Bank of Japan will review its benchmark interest rate tomorrow, and though it isn't expected to hike rates, markets will be watching for any commentary on the currency, which has surged to 85.27 yen per US dollar.

Businesswire.co.nz

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