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Dollar consolidates but remains close to decade low against Aussie

Wednesday 15th December 2010

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The New Zealand dollar consolidated today after falling yesterday and it continued to trade near a decade-low against the Australian dollar.

The NZ dollar took a hit yesterday on weak retail data, with seasonally adjusted retail sales falling 2.5% in October.

The Treasury's Half Year Economic and Fiscal Update yesterday maintained the dour mood, although the data in that release was expected and largely factored in by the market.

By 5pm the NZ dollar was at US74.92c from US75.38c at 8am and US74.97c at 5pm yesterday. It spent most of the day between US74.78c and US75.22c.

"After yesterday's move lower the kiwi has pretty much consolidated today toward the lower end of the range," said Murray Hindley, chief currency dealer at ANZ.

"We are still struggling against the aussie," he said.

All eyes are on economic data due out next week. This includes September quarter gross domestic product data. TD Securities said today that there was risk of a small negative figure.

After dipping to A75.1c against the aussie around 4.30pm yesterday, its lowest point since late 2000, the NZ dollar dragged itself up to around A75.65c overnight but then fell away again to A75.27c at 5pm.

The NZ dollar was at 62.78 yen after falling to a two-week low around 62.40 shortly before 5pm yesterday. It lifted to 0.5611 euro after dropping to around 0.5580, its lowest level in nearly six weeks.

BNZ currency strategist Mike Jones said gains by the NZ dollar against the greenback overnight came thanks to a broad-based weakening in the US currency.

Market sentiment was bolstered by a successful Spanish bond auction and soothing words from European Central Bank president Jean-Claude Trichet, Mr Jones said.

Global equity markets also posted modest gains, indicating a mild firming in risk appetite.

Another factor seen influencing the market was stronger-than-expected US retail sales data that lifted bond yields and optimism about the US economy.

Around 8.15am today the US Federal Reserve said it would maintain the pace of its $US600 ($NZ797) billion Treasury bond-buying programme because a slowly improving economy was still too weak to bring down high unemployment.

Fed policymakers said they would continue to monitor the bond-buying programme. They left open the option of buying more bonds if the economy weakened, or fewer if it strengthened more than expected. The bond purchases are intended to lower long term interest rates, lift stock prices and encourage higher spending.



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