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Kiwi falls on weak US consumer confidence

Wednesday 28th July 2010

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The New Zealand dollar fell as weak American consumer confidence eroded investors’ optimism and prompted a sell-off in higher-yielding, or riskier, assets.  

Stocks on Wall Street were mixed after US consumer confidence data fell short of expectations, taking the sheen off upbeat sentiment amid a strong corporate earnings season. Some 82% of 179 companies on the Standard & Poor’s 500 have beaten analysts’ expectations.

That comes ahead of today’s Australian consumer price index, which will show the pace of second-quarter inflation rose to 1%, according to a Reuters survey, and New Zealand’s National Bank Business Outlook, which is expected to report deteriorating sentiment among local companies.  

The market thinks “0.9% should be enough to trigger the RBA to hike next week, though the decision’s not as simplistic as that,” said Imre Speizer, market strategist at Westpac.

“The kiwi will hold around its current level until this afternoon when we get the inflation and business confidence data,” and could go either way from there, he said.  

The kiwi dropped to 73.25 US cents from 73.52 cents after touching a new six-month high near 74 cents. It fell to 68.37 on the trade-weighted index of major trading partners’ currencies from 68.59 and edged up to 64.40 yen from 64.27 yen. It declined to 56.32 euro cents from 56.61 cents yesterday, and sank to 46.97 pence from 47.49 pence. It was little changed at 81.19 Australian cents from 81.27 cents.  

Speizer said the currency may trade between 73.10 US cents and 73.60 cents today, and may look to test 74.40 cents if Reserve Bank Governor Alan Bollard hikes the official cash rate a quarter-point to 3% as expected.

Bollard is expected to lift the OCR 132 basis points over the coming year, according to the Overnight Index Swap curve.  

Stocks in Europe extended their gain for a fifth day after UBS and Deutsche Bank reported better-than-expected profits for the second quarter. Upbeat consumer confidence in Germany and increased loan growth in Europe stoked the region’s optimism, with 10-year government bonds in the PIGS (Portugal, Ireland, Greece and Spain) shedding some of their risk premium.  

The Reserve Bank of India hiked its repurchase rate 50 basis points to 4.5%, the first half-point increase since 2008, as the central bank looks to damp accelerating inflation amid surging economic growth. Governor Duvvuri Subbarao will also review the benchmark interest every six weeks, rather than quarterly.

The kiwi fell to 34.18 rupees per dollar from 34.34 rupees yesterday.

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