New Zealand dollar starts week above US74c

Photo / Dean Purcell

The New Zealand dollar started the week above US74c, though the story was one of ongoing US dollar weakness rather than strength in the local currency and trading is expected to be quiet with the Labour Day holiday in several Australian states today.

The US dollar hit a six month low against the euro on Friday after a Federal Reserve official said that the outlook for jobs and inflation in the US was unacceptable, noting that "further action is likely to be warranted".

The NZ dollar was at US74.40c at 8am, up from US73.70c at 5pm on Friday. It rose as high as US74.62c during the weekend. The US74c level has been seen as a barrier to any moves higher but technical analysts have said if it is convincingly breached it will become a support level.

The Fed is expected to print money in a so-called 'quantitative easing' to boost the US economy, which reduces US interest rates and the value of the US dollar.

"The level of scuttlebutt has gotten so loud that we feel quantitative easing is more likely than not, and we suspect it will be of the ongoing, measured targeted variety as opposed to the shock and awe tactic of March 2009," ANZ said.

"But perhaps the big question - why do we keep focusing on it? Because quantitative easing is like an elephant in the room, and if US rates keep moving lower, they will take ours with them, albeit in a diluted fashion."

The Australian dollar has powered to fresh multi-year highs on the back of US dollar weakness and as investors position ahead of Tuesday's Reserve Bank of Australia (RBA) interest rate announcement.

It had been knocked slightly last week by weaker than expected building approvals and private sector credit data.

The Australian dollar was at US97.25c at 8am from US96.66c at 5pm on Friday.

Still, the NZ dollar firmed to A76.46c at 8am from A76.10c on Friday.

The market is leaning towards the view the RBA will hike rates from 4.50 per cent to 4.75 per cent, Reuters reported.

The market is pricing in a 60 per cent chance the RBA will hike and a decision by the RBA to stay on hold would result in the Australian dollar correcting lower.

The NZ dollar was at 0.5389 euro from 0.5395 on Friday and at 61.92 yen from 61.43 yen.

The trade weighted index was at 66.63 from 66.27 on Friday.

China pledged on Sunday to support a stable euro and not reduce its holdings of European government bonds in an effort to deflect criticism of its foreign exchange policy ahead of an EU-China summit this week.

- NZPA