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Dollar heads for 0.5% gain in October as traders ponder greenback strength

Paul McBeth
Fri, 31 Oct 2014

The New Zealand dollar is heading for a 0.5 percent monthly gain as traders question the sharp appreciation in the greenback since the end of June after an optimistic outlook from the Federal Reserve.

The kiwi traded at 78.45 US cents at 5pm in Wellington from 78.07 cents at the end of September and 78.46 cents at the end of last week. It traded at 78.42 cents at 8am and 77.90 cents yesterday. The trade-weighted index is heading for a 0.6 percent increase in October to 76.54, up from 76.34 at last week's close and 76.06 yesterday.

Investors have pared back their bets on the greenback in the past day with US Commodities Futures Trading Commission data showing the net number of 'long' positions, betting the greenback would likely rise in value, is at its highest since almost 2002. Strong economic data in the US and an optimistic outlook from the Federal Reserve this week stoked demand for the greenback, which has climbed almost 9 percent since early July as investors grew more confident the US central bank will start hiking interest rates next year.

Yesterday's New Zealand Reserve Bank meeting was another weight on the kiwi after governor Graeme Wheeler toned down his tightening bias as buoyant housing prices fail to stoke broader consumer inflation.

"The kiwi is really failing to make much headway getting below the 78 cents on a sustainable basis, despite the two tailwinds of a much less hawkish Reserve Bank and a more upbeat Federal Reserve," said Raiko Shareef, currency strategist at Bank of New Zealand. "We expect any movement continuing downward in the kiwi to be hard fought for."

BNZ's Shareef said consistently strong US data will most likely be the driver for another leg down in the kiwi dollar, with the October non-farm payrolls due for release on Friday in Washington next week.

New Zealand government data today showed the slowest pace of monthly building consents in September in more than two years, with that month's general election feeding uncertainty among developers.

Tomorrow, China releases monthly manufacturing PMI data which will provide a gauge of how Asia's largest economy is tracking.

The local currency rose to 85.81 yen at 5pm in Wellington from 84.94 yen yesterday, and was almost unchanged at 88.84 Australian cents from 88.83 cents. It climbed to 62.24 euro cents from 61.73 cents yesterday, and increased to 49.04 British pence from 48.74 pence.


Paul McBeth
Fri, 31 Oct 2014
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Dollar heads for 0.5% gain in October as traders ponder greenback strength