Dollar gains as greenback weakens on reports Obama is concerned about USD strength

The New Zealand dollar advanced as the greenback weakened following reports US president Barack Obama raised concerns about the strength of the US dollar during the Group of Seven summit in Germany. The White House later denied the reports.

The kiwi rose to 71.41USc at 8am in Wellington, from 70.50USc at 5pm yesterday. The trade-weighted index gained to 74.78 from 74.21 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, fell after media reports citing a French diplomatic source said that President Obama had told people at the G-7 summit in southern Germany that the strong dollar is a problem. A stronger currency weighs on the competitiveness of industries and exports.

"These reports were denied by the US government, because they would never publicly stray away from paying lip service to their strong dollar policy but in reality the rising dollar is a problem for the Federal Reserve," Kathy Lien, managing director of FX strategy at BK Asset Management in New York, said in a note. "There are two primary consequences of a strong currency – weaker exports and lower inflation. The US is not an export-dependent economy and, based upon the trade balance, the strong dollar has not been a major drag on export activity but corporate earnings have suffered."

The kiwi may also be gaining support as some traders get "cold feet" ahead of this Thursday's Reserve Bank meeting where markets are split on whether New Zealand's 3.5% benchmark interest rate will be cut, Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. Traders are pricing in a 43% chance the Reserve Bank will cut this week, according to the overnight index swap curve.

In New Zealand today, first quarter manufacturing data is released, as well as the Crown financial statements for the 10 months through April and the latest monthly housing data for May from state valuer Quotable Value.

In Australia, the focus will be on the release of the NAB business confidence survey for May. The New Zealand dollar edged up to 92.67Ac from 92.60Ac yesterday.

Traders will also be eyeing Chinese May inflation data scheduled for release today. China is the largest trading partner for New Zealand and Australia.

The kiwi slipped to 63.26 euro cents from 63.48 cents yesterday, gained to 46.53 British pence from 46.18 pence and rose to ¥88.83 from ¥88.44.

(BusinessDesk)