Dollar cools as Chinese excitement subsides

The New Zealand dollar opened lower this morning as the greenback regained its footing after being oversold in a "knee-jerk" reaction to China's revaluation of its currency.

China last week dropped its peg against the US dollar which saw the kiwi carried up, with a host of other dollar-block currencies, to a three week high of around US68.80c.

But by the open of local trading in Wellington this morning it had eased to US68.39c (from US68.69c at Friday's local close) as the initial excitement subsided.

Many details are still unclear about China's revaluation, which now links the yuan to a basket of currencies.

"The initial knee-jerk reaction was a little too great," said David Durrant, chief strategist at Julius Baer Investment Management LLC.

"On second thoughts it's probably the first of a series of small steps but that's unknown."

Local dealers said longer term, the creation of a more flexible Asian currency block would mean the kiwi was less likely to appreciate on the back of a weak greenback.

On the news front this week, market economists are unanimous that the Reserve Bank will leave Official Cash Rate steady at 6.75 per cent in its next review on Thursday. Nine out of 14 economists polled by Reuters expect the central bank to start cutting rates in the first quarter of 2006.

A survey out today showed investor confidence has dipped to its lowest level in two years -- adding to a string of local data indicating a slowing economy.

The ASB Bank's Investor Confidence survey for the second quarter showed just 10 per cent of respondents expected their net return from investments this year to be better than last year, compared with 24 per cent in the first quarter.

At 8.30am in Wellington the greenback was fetching 111.27 yen (111.13 at 5pm on Friday), the euro was at US$1.2060 (US$1.2174) and the aussie was buying US76.09c (US76.48c).

On its crosses at 8.30am, the kiwi was buying A89.68c (A89.81c), 0.5671 euro (0.5641), 39.34 British pence (39.19), 0.8868 Swiss francs (0.8821) and 76.09 yen (76.30).

Elsewhere, the TWI was at 69.23 (69.27) and the monetary conditions index steady at plus 970.

On the money markets, 90-day bank bill yields were flat at 7.04 per cent, July 2009 bond yields were unchanged at 5.89 per cent, and April 2015s were at 5.84 per cent (5.83).

- NZPA