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NZ dollar to head lower over next month as US recovery shows signs of life

Thursday 25th November 2010

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The New Zealand dollar will probably sink toward 74 US cents in coming weeks as American data stokes investors' appetite for the greenback amid sparks of life in the world's biggest economy.

The Dollar Index, a measure of the greenback against a basket of currencies, rose 0.3% to 79.78 as markets latched on to upbeat employment data and ignored softer consumer spending and home sales figures ahead of the Thanksgiving Holiday in the US on Thursday. The kiwi extended its losses and Westpac Institutional Bank strategists are picking it will target 74 US cents as it rounds out the year. Still, New Zealand's long-term outlook is brighter, and they predict a pick-up in the kiwi next year as the economy continues to recover and the central bank starts hiking interest rates.

"Over the next few weeks the kiwi should be lower," said Imre Speizer, market strategist at Westpac Banking. "The domestic fundamentals argue for a higher kiwi, with higher interest rates and the terms of trade story, but that's more likely to come next year."

The kiwi slipped to 76.14 US cents from 76.23 cents yesterday, and was little changed at 66.74 on the trade-weighted index of major trading partners’ currencies from 66.73. It rose to 63.58 yen from 63.56 yen yesterday, and fell to 77.51 Australian cents from 77.82 cents. It rose to 57.14 euro cents from 56.95 cents yesterday, and gained to 48.31 pence from 48.22 pence.

Speizer said the currency may trade between 75.80 US cents and 76.50 cents today with Australian private capital expenditure data and the looming American holiday the only events of note. Thanksgiving could cause volatility in currency markets with thin liquidity magnifying moves, he said.

Jitters over European sovereign debt eased after Ireland's government said it will slash spending by a fifth and hike taxes over the next four years to reduce its debt. Standard & Poor's downgraded Ireland's credit rating two notches to A, and said further cuts could happen if the austerity package's progress stalls or the nation has to pump in more cash.

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