11 June 2009

Source: stuff.co.nz

The New Zealand dollar slipped against the US dollar overnight following a broad rise by the greenback spurred by a US$19 billion Treasury note sell-off.

At 8am today – ahead of the Reserve Bank's official cash rate announcement – the NZ dollar was trading at US62.71c down from US63.10c at 5pm yesterday.

The kiwi was trading at A78.08c, down from A78.25c yesterday, and edged up to 0.4484 from 0.4478 against the euro and to 61.64 against the yen, from 61.55. The kiwi eased slightly against the pound, to 38.34p from 38.67p.

The trade weighted index was also fractionally down, to 59.49 from 59.66 yesterday.

"The higher currency's also putting the squeeze on export returns and, on top of lagged falls in the dairy prices still to come, the risks are that the terms of trade slides further in quarters to come," BNZ economist Mark Walton said.

In the US, the dollar extended gains after a Federal Reserve report on US economic conditions, known as the Beige Book, said the economy was still weak but there were signs that the slide was easing.

Russia's plans to diversify its reserve holdings also sent US Treasury yields higher early Wednesday and initially added to broad-based dollar selling.

With the US budget deficit expected to hit about US$1.8 trillion this year and rise even further from there, "of course everyone wants to diversify their holdings in the long run," said Firas Askari, head of FX trading at BMO Capital Markets, in Toronto.

"But they're all long Treasuries and can't just dump them at once," he added.

The Australian dollar traded against the greenback at 80.34c, down from 80.59c, the euro at 1.3987, down from 1.4085 while the yen rose to 98.26, from 97.59 yesterday.

- NZPA