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Kiwi pares loss as weak US data saps demand for greenback

Friday 2nd July 2010

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The New Zealand dollar pared its losses after weak data in the US sapped investors' demand for the greenback as stocks on Wall Street and in Europe tumbled amid signs of a slowdown in Chinese manufacturing.  

The Dollar Index, a measure of the greenback against a basket of currencies, fell 0.4% as investors unwound their holdings in the so-called safe haven after ISM manufacturing and pending home sales data disappointed.

That came after stocks on both sides of the Atlantic took a turn lower following data showing Chinese manufacturing slowed last month, heightening fears for a double-dip recession.

The kiwi initially headed lower and touched on 68 US cents, before recouping its losses as investors turned away from the greenback amid the grim outlook for the world's biggest economy, and poured their money into the euro.  

"There was a bit of decoupling last night with the data quite poor, pushing equities lower and the US dollar getting sold off - generally when stocks have fallen, risk currencies have gone too," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

"The kiwi and the Aussie got dragged higher by the euro, but the kiwi was sold off on the crosses for the first time in ages."  

The New Zealand dollar rose to 68.94 US cents from 68.49 cents yesterday, and slipped to 66.13 on the trade-weighted index of major trading partners' currencies from 66.20. It was little changed at 60.41 yen from 60.45 yen yesterday, and gained to 81.80 Australian cents from 81.66 cents.

It dropped to 55.06 euro cents from 55.71 cents yesterday, and declined to 45.40 pence from 45.91 pence.  Kelleher said the currency may trade between 68.80 US cents and 69.30 cents today with Asian equities likely to sideways ahead of US employment data later today.

With a possible decoupling between so-called risk currencies and equity markets, a weak print in the non-farm payrolls could see the kiwi go either way, Kelleher said.  

The kiwi is trading in a range of between 68 US cents and 71.50 cents, and Kelleher said exporters are keen to buy on dips at the bottom on the range, while anything with a seven in front of it will get sold.  

Europe's lenders repaid some 442 billion euros to the European Central Bank yesterday after the regulator's 12-month liquidity facility fell due, and the bank introduced a new six-day liquidity facility which 78 lenders tapped for 11 billion euros.

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