NZ dollar drops to 71 US cents as investors exit shorts on greenback

Friday 18th December 2009

The New Zealand dollar dropped to just over 71 U.S. cents as investors roll back their exposure to higher-yielding, or riskier, assets going into the holiday period.

The Dollar Index, a measure of the greenback against a basket of six currencies, rose 0.3% to 77.71 as traders continue to unwind their short positions in the U.S. currency. Short positions are where traders sell their holdings in an asset on the expectation they can buy it at a cheaper price. Stocks around the world declined as investors’ risk appetite dwindled going into the Christmas holiday, while Standard & Poor’s downgrade of Greece’s credit rating to BBB+ added to the subdued sentiment.

“We were always expecting some kind of position squaring, though a lot of people have been surprised by the extent of it and the sudden shift in sentiment to the U.S. dollar,” said Khoon Goh, senior markets economist at ANZ National Bank. A drop below 70 U.S. cents is possible in the coming weeks “when liquidity is thin and any moves are exaggerated,” he said.

The kiwi dropped to 71.03 U.S. cents from 71.26 cents yesterday and declined to 64.78 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.84. It edged down to 63.91 yen from 63.98 yen yesterday and inched up to 80 Australian cents from 79.92 cents. It was little changed at 49.52 euro cents from 49.49 cents yesterday and recently traded at 43.94 pence from 43.90 pence.

Goh said the currency may trade between 70.65 U.S. cents and 71.55 cents today as Asian investors focus on their U.S. dollar holdings.

New Zealand business confidence remained buoyant according to the National Bank Business Outlook yesterday. Though the headline figure eased slightly, firms were generally more optimistic about their profit expectations, export intentions and own business activity.

The Bank of Japan reviews monetary policy today, and while it isn’t expected to move on rates, markets will be looking to see if the world’s second largest economy will introduce quantitative easing measures.

Businesswire.co.nz

Comments from our readers

No comments yet