Dollar recovers from early dip

File photo / Dean Purcell

The New Zealand dollar dipped in early trading yesterday but went on to recover much of the ground it lost.

The euro has been a mover in currency markets lately but local events to focus on this week include a Fonterra milk auction, consumers price index and retail sales data, confidence surveys and a housing market report.

The NZ dollar was at US76.82c at 5pm, up from US76.69c at 8am but still down from the US77.02c at 5pm on Friday.

A move by China to raise lenders' required reserves by 50 basis points has created concern that Asian economies may not be as strong as expected, causing mixed trading in regional equity markets.

Westpac also expects the US dollar to be weak this week, arguing this will underpin the NZ dollar, with the possibility of a test of US78c.

The US dollar is again mired by talk of the United States losing its triple-A credit rating because of rising national debt.

"The [US] dollar is on a continued weakening bias, correcting from an overbought top," said Douglas Borthwick, a managing director for trading at Faros Trading LLC, a forex execution firm in Connecticut.

The euro has been buoyed by successful bond auctions in Spain and Portugal last week and the market is eyeing European meetings this week for news.

The NZ dollar was at €0.5760 at 5pm from €0.5729 at 8am, having hit its lowest level in more than a week around €0.5710 on Friday night.

The NZ dollar reached a six-week high against the Australian currency around A77.85c yesterday and was A77.80c by 5pm. Concerns about the impact of the floods as well as Chinese policy moves on the Australian economy, affected sentiment for Australian assets.

"Any Chinese rate rise or tightening of the Reserve Rate Ratio is a pseudo rate hike for the Australian economy," IG Markets said.

The NZ dollar's trade weighted index was little changed at 69.15 at 5pm yesterday from 69.19 on Friday.

- NZPA