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Home / Business / Economy

Dollar to slip even further

4 Jul, 2005 09:54 AM2 mins to read

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The dollar's plunge to eight-month lows yesterday and Friday may herald a decisive and welcome move lower for the currency.

The kiwi continued to fall during local trade yesterday closing at 68.07USc having hit a fresh eight-month low of 67.70USc earlier in the session.

Its move lower followed its break
through important supporting levels on Friday as the greenback surged on a rate rise and strong economic data.

"Certainly a big Friday night for the kiwi - I guess more so for the US dollar," said ANZ Investment Bank foreign exchange head John Body.

"Strong US data took away concerns of sloppy US growth for the final two quarters of the year and assured the Fed will be on a steady tightening cycle. Generally, the yield currencies bore the brunt of that."

One of the key factors in the kiwi's strength in the past couple of years has been high interest rates relative to other countries, especially the US. That means comparatively more yield for investors who buy the kiwi and other high interest currencies.

"Technically, the damage has been done - confidence in the yield trade has been reduced quite a lot and the lack of a consistent bounce replicates the price action we saw in the euro when it started falling.

"We expect this to be part of a deeper correction in the kiwi down to a minimum of 65USc."

Westpac chief economist Brendan O'Donovan said a narrowing of yield differentials was one of several factors Westpac had been looking for to trigger an overdue plunge in the local currency.

"For me, the currency is an accident waiting to happen ... At some stage, this thing's going to come a cropper."

- NZPA

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