Dollar holds ground after 27-month high

File photo / NZH

The New Zealand dollar raced to its highest level against the US dollar in 27 months today and held there as investors waited to see the extent of a policy easing in the United States.

The NZ dollar was at US76.60c at 5pm, up from US76.54c at 8am and sharply up from the US75.34c at 5pm on Friday. Dealers said it traded as high as US77.74c during the session.

New Zealand Manufacturers and Exporters Association (NZMEA) chief executive John Walley said the NZ dollar's rise was hitting exporters harder than in 2007 because sales volumes were low and so too were margins.

"When the dollar hit post float highs in 2007 we had strong worldwide demand to offset lower margins. Now coming out of the recession demand remains relatively weak, and it has to be remembered that firms that have made it this far have already cut out any fat from their processes," he said.

But dealers said the NZ dollar's strength continued to be a story of US dollar weakness. The US dollar remained weak ahead of US mid-term election results this week and details of a round of quantitative easing expected from the Federal Reserve.

The Fed has been polling dealers to get an indication of what the markets are thinking with regard to quantitative easing, Rankin Treasury said. There was general agreement it would move on Thursday, but the amount and timing was unknown.

"They will want to keep their options open to vary the rate as time passes and more data is seen. But the fact remains that they will be printing money." This would debase the US currency.

Labour market data this week in New Zealand was expected to be overshadowed by these offshore events.

Data today showing China's official purchasing managers' index for manufacturing rose above expectation to a six-month high also lifted the Australian and NZ dollars.

Dealers said there was a lot of "event risk" this week, making it difficult to predict the direction of the NZ dollar. The Reserve Bank of Australia would also pronounce on interest rates tomorrow - Melbourne Cup day - and Fonterra has another online auction of milkpowder this week, which would be an indicator of commodity prices.

The ANZ Commodity Price Index released today lifted 3.5 per cent in October, taking the series to a new high.

Westpac said that from a technical perspective the NZ dollar's break above US76.40c last week paved the way for a move to US77.60c and beyond that to US80.00c. This assumed that the break last week was not a false one. Any correction lower would be limited to around US65.50c.

The NZ dollar also pushed up to its highest level against the Australian dollar in six weeks, topping A78c early on Saturday. At 5pm today it was at A77.54c from A77.72c at 8am and A77.15c at 5pm on Friday.

Westpac said that barring an RBA hike tomorrow the cross should gradually work its way towards A82c over the next six months.

The NZ dollar was also up to 0.5478 euro at 5pm today from 0.5420 at 5pm on Friday, and rose to 61.77 yen from 60.70. The trade weighted index was up to 67.73 from 66.92.

- NZPA