Kiwi eases from 10-month high

Tuesday 5th October 2010

The New Zealand dollar fell from a 10-month high as a pick-up in American housing data polished the appeal of the beaten-down greenback and as traders await local business confidence figures and the Reserve Bank of Australia meeting today.

The Dollar Index, a measure of the greenback against a basket of six currencies, gained 0.4% to 78.48 after pending home sales in America reached a four-month high in August while more concerns about European sovereign debt sapped demand for the euro.

That comes ahead of the New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion, which will likely show companies are downbeat about the strength of New Zealand's economic recovery.

The RBA will announce its decision on the target cash rate this afternoon, and is expected to hike the benchmark interest rate a quarter-point to 4.75%.

"The kiwi was trapped within a tight range, and is pretty much in a holding pattern," said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

"The QSBO might provide domestic direction, though that's likely to be very short-lived" with the RBA decision later in the day, he said.

The kiwi dropped to 74.11 US cents from 74.32 cents yesterday, and was little changed at 66.57 on the trade-weighted index of major trading partners' currencies from 66.69. It fell to 61.80 yen from 61.96 yen yesterday, and declined to 76.13 Australian cents from 76.65 cents. It rose to 54.16 euro cents from 54.01 cents yesterday, and decreased to 46.81 pence from 47.06 pence.

Goh said the currency may trade between 73.59 US cents and 74.32 cents today, though the event risk around the QSBO and RBA announcements could push it beyond both of those ranges.

Fitch Ratings affirmed New Zealand's foreign currency long-term issuer default rating at AA+, though kept it on a negative outlook, saying the nation's finances are still unclear and "more concerted initiatives by the authorities to address the issue".

The rating agency said the government's restructuring of the tax system was a bonus to help lift household saving, but it needs more time and cross-party consensus to bed in.

Quantitative easing spent another day in the headlines, with Brian Sack, head of the open market desk at the New York Federal Reserve, saying the central bank can stimulate the markets by ramping up its asset purchasing programme.

That follows NY Fed President William Dudley and Chicago Fed President Charles Evans lending their weight behind the bank printing more money.

Goh said QE was the major focus of the markets at the moment, with investors "pricing in a decent chance of it happening on November 4" when the Federal Open Market Committee next reviews monetary policy.

Businesswire.co.nz

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