Dollar hits new high as inflation fears prompt exit from greenback

Wednesday 9th September 2009

The New Zealand dollar hit a new high this year as inflation fears prompted investors to unwind their holdings in the greenback and stoked appetites for precious metals such as gold.

Gold climbed above US$1,000 per ounce on the New York Mercantile Exchange and the Dollar Index, a measure of the greenback against a basket of six currencies, fell to an 11-month low of 77.06 as investors’ concerns about future inflation begin to flare. Still, risk appetites remained buoyant and equity markets extended their gains, helping boost demand for higher-yielding assets such as the kiwi and Australian dollars.

“There was a fall away from the US dollar as people expect an economic recovery and are starting to factor in inflation concerns,” said Imre Spezier, currency strategist at Westpac Banking Corp. “Excluding the euro, the kiwi and Aussie outperformed all other currencies as they hit new 2009 highs,” he said, referring to the currencies colloquially.

The kiwi dollar rose to a 12-month high 69.84 US cents from 69.72 cents yesterday and recently traded at 69.58 cents. It was little changed at 63.83 on the trade-weighted index, or TWI, a measure of the currency versus the pound, euro, yen, and Australian and US dollars, from 63.91 yesterday, and edged down to 64.19 yen from 64.23 yen.

It slipped to 08.65 Australian cents from 80.76 cents yesterday and fell to 48.04 euro cents from 48.19 cents. Speizer said the currency may trade between 60 US cents and 69.90 cents today and is “looking quite bullish for the rest of the week.”

Reserve Bank Governor Alan Bollard will review monetary policy tomorrow and economists expect he will hold interest rates at a record-low 2.5% and remove the easing bias in his statement. Bollard slashed the official cash rate 525 basis points when he embarked on the steepest series of cuts to the benchmark rate in July 2008 as he attempted to revive the economy which slipped into its deepest recession since the 1970s.

International Monetary Fund managing director Dominique Strauss-Kahn was bullish about the global economy in an interview with Il Sole 24 Ore newspaper and speculated the recovery may come a quarter earlier than expected.

The New Zealand government will release electronic card transactions for August, which Speizer predicts will show a pick-up in consumer spending. In Australia, retail sales and home loans data for July, and the Australian September Westpac Consumer Confidence survey will be released today.

Businesswire.co.nz

Comments from our readers

No comments yet