KEY POINTS:
The kiwi dollar - which has already dropped 10 per cent against the US dollar in just over a month - will face more pressure today as the market responds to further rises in the greenback.
The US dollar extended its rally against major currencies on Saturday as commodities fell and European and Japanese economies faltered.
Some analysts now argue the US dollar may finally be on the way up and the commodity bubble may be about to burst.
The US currency rose against the British pound for the 11th straight day, to US$1.85 - its longest winning streak in 37 years. It climbed to its strongest level in almost six months against the euro and to near a seven-month high versus the yen.
The trend pushed oil prices lower. Oil fell to its lowest price in three months. Opec predictions that the world's thirst for fuel next year will fall to its lowest point since 2002 added to the slump.
Light, sweet crude for September delivery settled at US$113.77 a barrel after falling to $111.34 - 24 per cent below its July peak US$147.
A stronger US dollar will come as a relief to exporters around the world as it makes products into the key US market more competitive on price.
The US dollar reached an all-time low on July 15 of US$1.60 to the euro, down from a peak of US82c to the euro in 2000. The decline was blamed on the large trade and budget deficits, investment flows out of the United States, and lately by the US Federal Reserve rate cuts.
Analysts say the greenback is benefiting from expectations that prices for commodities such as oil and gold are on the brink of a massive fall, as traders gamble that a slowing global economy could lead to diminished demand.
"There's a fear that the whole commodity boom is going to end, that the bubble is going to burst," said James Hughes, analyst at traders CMC Markets. A rising dollar typically pushes oil lower as investors who buy crude and other commodities as hedges against inflation start dumping their positions to cut losses. A stronger greenback also makes dollar-denominated commodities more expensive to overseas buyers, further eroding demand. Gold, silver and copper are trading at multi-month lows, with the spot price of gold falling as far as US$789oz - its lowest since December. Vegetable oil, corn, wheat and rubber are also tumbling. Investors who pulled money out of dollar-denominated investments and poured it into commodities are now reversing course - and buying dollars again.
The dollar is also profiting because many of the world's richest economies are contracting, while the US is still enjoying growth, albeit slower than in recent times.
New Zealand is expected to already be in a technical recession.
On Friday the European Commission said the economy in the 15 countries that use the euro shrank by 0.2 per cent in the three months to June. It is the first time since the launch of the euro that the region has suffered negative growth. Japan also reported economic shrinkage last quarter.
Fears that Britain is heading for recession - amid plummeting house prices, plunging consumer confidence and rising inflation - worsened last week as Bank of England Governor Mervyn King predicted the economy would stagnate for the next year.
"The US was the first economy to hit trouble," said Tim Clayton, chief strategist at currency advisory consultancy Investica. "Now people are realising that the problems aren't limited to the US. In some places they might even be worse."
An HSBC research note published on Friday agreed: "The USD's upward momentum is developing freight-train-like qualities."
It said any temporary dollar dips would be limited by strong fundamentals - "primarily the notion that the rest of the world is finally following the US down the tubes."
DOLLAR SIGNS
* The US dollar has surged back to its strongest level in six months.
* The kiwi dollar has already shed 10 per cent in the past month
* The rising greenback is helping ease oil prices
* Oil fell as low as US$111.34 - before settling back above US$113
* Some analysts are tipping the commodity bubble is about to burst
