NZ dollar falls as optimism of US recovery drives greenback higher

Wednesday 15th May 2013

The New Zealand dollar fell as optimism of a US recovery raises the prospect of an end to quantitative easing in the world's largest economy.

The kiwi dropped to 81.82 US cents from 82.90 at 5pm yesterday. The trade-weighted index slid to 76.88 from 77.46 yesterday. The US Dollar Index, which tracks the greenback against its major trading partners, was at 83.58, and recently touched 83.59, its highest level since July last year.

The greenback is advancing on signs that the US economy is improving, which may signal an end to the Federal Reserve's US$85 billion a month of bond buying. The world's reserve currency was underpinned by data this week showing US retail sales unexpectedly rose in April, and minor releases such as small business optimism and household debt surveys. The Standard & Poor's 500 Index charted a new record high.

"It's a general trend of US dollar strength at the moment," said BNZ strategist Kymberly Martin. "People once again are starting to consider when the end to quantitative easing may occur."

While the end to easing is "back on the radar", the turning point has not yet come, she said.

The kiwi would likely be supported at the 81.60 US cents, she said.

The New Zealand dollar may also be trending weaker as it tracks the Australian dollar down, Martin said. The Australian government budget yesterday showed a downgrade to growth and a slower return to surplus, reducing demand for that nation's currency which is closely correlated with our own, she said.

The New Zealand dollar slipped to 82.74 Australian cents to 82.97 cents at 5pm yesterday and dropped to 83.63 yen from 84.11 yen. It weakened to 63.21 euro (check level, lowest since mid-March?) from 63.71 and fell to 53.75 British pence from 54.12 pence.

BusinessDesk.co.nz

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