Dollar holds broad gains, NZ dollar stung by RBNZ

September 10
8:37 PM 2014

The U.S. dollar held near a six-year peak against the yen early on Thursday and powered to a seven-month high on its New Zealand peer, which fell after the country's central bank said its current level is "unjustified and unsustainable".

The kiwi sank as far as $0.8180, bringing into view its 2014 trough of $0.8052 set in February. It has fallen more than 6 U.S. cents from the July high of $0.8839.

"We expect a further significant depreciation, which should be reinforced as monetary policy in the U.S. begins to normalize," Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement.

Indeed, the greenback has been a star performer in the past few weeks, partly because investors are again getting nervous about when the Federal Reserve might start to lift interest rates.

That has prompted a rise in U.S. Treasury yields, which in turn helped boost the appeal of the greenback, particularly against low-yielding peers such as the yen and euro.

In New York trade overnight, the dollar hit a six-year high of 106.89 yen and remained just a whisker away early in Asia. The dollar index .DXY traded at 84.200, near a 14-month high of 84.519 reached on Tuesday.

The euro continued to count its losses after last week's policy easing from the European Central Bank. It traded at $1.2916, struggling to break away from a 14-month trough of $1.2859 plumbed on Tuesday.

But the common currency rallied against its Swiss counterpart after the Swiss National Bank reinforced its willingness to take further steps to cap the franc at 1.20 per euro if necessary, including imposing negative interest rates.

The euro jumped to a one-month high of 1.2119 francs, well off a near two-year low of 1.2045 hit last week.

Sterling remained on a shaky footing as well given the prospect that Scots may vote for independence in a referendum next week, breaking up the United Kingdom. It was at $1.6205, having slumped to a 10-month low of $1.6052 on Wednesday.

In a sign of panic over the possible disintegration of the 307-year-old union, British Prime Minister David Cameron, his deputy and the opposition Labour Party leader all headed to Scotland to offer greater autonomy as an enticement to vote against independence.

Investors have also been giving the Australian dollar the old heave-ho this week, pushing it down nearly 3 full U.S. cents. It has steadied around $0.9150 for now, having hit a near six-month low of $0.9113.

Australia's employment data at 9.30 p.m. ET could throw the currency a lifeline if it surprises on the upside. Aussie bulls are nervous, though, as the previous report showed a shock jump in the jobless rate to a 12-year high of 6.4 percent.

"We think AUD remains vulnerable given stretched positioning and falling metals prices, and maintain our short AUD/USD and short AUD/CAD recommendations, while continuing to see downside risk for AUD/NZD," analysts at BNP Paribas wrote in a note to clients. China's inflation figures at 9.30 p.m. ET will also be closely watched. ECONASIA

Just ahead of the data, markets will also be keeping an eye on a speech by President Barack Obama in which he will lay out his strategy for defeating the militant group Islamic State.

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