Dollar rises as terms of trade hold at 40-year high

The New Zealand dollar edged up after government figures showed the nation's terms of trade stayed at a 40-year high in the second quarter as a stronger currency provided cheaper imports and offset the impact of falling commodity prices.

The kiwi rose to 83.73 US cents at 5pm in Wellington from 83.58 cents at 8am and 83.59 cents on Friday in New York. The trade-weighted index increased to 79.09 from 78.96 last week.

New Zealand's terms of trade, which measures the quantity of imports the country can buy with a set amount of exports, rose 0.3 percent in the three months ended June 30, beating expectations for a 2.3 percent fall. New Zealand's currency has come under pressure in recent months as falling dairy prices, the nation's biggest export, weighed on the outlook for economic growth.

"The terms of trade were certainly better than expected, and enough to give the kiwi a little bit of a nudge," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "Any rallies in the kiwi against the US dollar for the time being appear to be somewhat limited to the upside."

The strong local data came against a backdrop of dwindling risk appetite in the global market as tensions mount between Russia and western nations over the sovereignty of Ukraine. Russian president Vladimir Putin yesterday criticised European leaders for supporting Ukraine and said talks on the conflict should include the issue of 'statehood' in eastern Ukraine, suggesting he is unlikely to back down.

The kiwi increased to 63.78 euro cents from 63.63 cents on Friday in New York.

Chinese manufacturing figures today missed expectations, with the official purchasing managers' index at 51.1 in August, and the HSBC flash PMI at 50.2. China is New Zealand and Australia's biggest trading partner. The kiwi rose to 89.61 Australian cents from 89.47 cents on Friday, and ahead of tomorrow's Reserve Bank of Australia policy review, which is expected to keep the target cash rate at 2.5 percent.

The local currency gained to 87.23 yen at 5pm in Wellington from 86.98 yen last week, and traded at 50.44 British pence from 50.36 pence.

(BusinessDesk)