Kiwi holds above US80c despite soft data

JASON KRUPP
Last updated 08:50 03/07/2012

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The New Zealand dollar held above the US80 cent mark overnight despite a raft of weaker-than-expected global manufacturing data, capped by a surprise slump in the US factory activity.

The kiwi recently traded at US80.38 cents, up from US80.05c at 5 pm yesterday, while on the Trade Weighted Index of major trading partners' currencies it rose to 72.52 from 72.30.

The afterglow from the weekend's euro summit lost significant momentum in the offshore session, sapped by weaker performance of manufacturing data out of China which dropped to a seven-month low.

The shift to risk-off trading patterns gathered steam after Institute of Supply Management figures showed US factory activity dropped in June, taking the market by surprise.

That sparked fears among investors that the global economy's modest recovery was looking increasingly vulnerable, and saw currency traders trim their positions in the euro.

The single currency recently traded at US$1.2585, down from US$1.2625 at 5pm yesterday, and US$1.2657 seen on Friday at the New York close.

The sell-down in the euro was also helped by the emergence of cracks in the weekend's euro pact, with Finland and the Netherlands saying they may not support the use of the European Stability Mechanism to buy Spanish and Italian bonds.

Somewhat surprisingly the kiwi sat out the session, posting modest gains against most of its peers.

"It seems to be related to solid kiwi/euro buying," said Mike Jones, a market strategist at Bank of New Zealand. "We saw the euro give up a good part of Friday's gains and good part of that reflected in the crosses."

He said the kiwi was also being helped by interest rate differentials, with the Reserve Bank of New Zealand looking as if it will hold the Official Cash Rate at 2.5 per cent while other central banks are tipped to ease further.

The Reserve Bank of Australia's rate announcement today will be the highlight of the currency calendar. Jones said the market was pricing in further aggressive easing, and any disappointment could see the Australian dollar "pop higher".

On the crosses, the kiwi recently traded at 78.52 Australian cents, up from A78.35c at 5pm yesterday, and it rose to 63.92 yen from 63.83 yen. The New Zealand dollar rose to 63.86 euro cents from 63.46 euro cents, and slipped to 51.20 pence from 51.26 pence.

The kiwi may trade between a range of US79.80c and US81, Jones said, with the bias tipped towards further gains in the short term.

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- BusinessDay.co.nz

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