Kiwi appears to find its balance

Press, 2 July 1986, Page 35

Kiwi appears to find its balance

PA Wellington The New Zealand dollar appeared to consolidate on the foreign exchange market yesterday after a sharp upward move on Monday. Dealers said Monday’s move was sentimentdriven in reaction to the Government’s funding programme outlined on Friday. The unit closed at $U50.5460/75 down from Monday’s 5U50.5500/10 close and yesterday’s $U50.5480/95 opening level. It deviated little from U554.7C throughout most of the day, but book squaring towards the end of trading enlivened activity. The unit seemed relatively balanced at this level, a dealer said. The Australian dollar took a pounding to sink from its $U50.6753/60 opening level to a low of about $U50.6650. But the Australian Federal Government’s announcement that it would be withdrawing the withholding tax on offshore banking transactions aided a minor recovery in the unit. It recovered to close at $U50.6710/30, but was still USO.5c weaker than its opening in New Zealand. The trade-weighted Reserve Bank exchange rate closed at 66.0, unchanged from Monday’s 3 p.m. reading. On the cross-rates, the New Zealand dollar was worth sAustBl.96c, 1.19 marks, 35.4 p and 89.14 yen. The U.S. dollar finished weaker at at 2.1795/10 marks from 2.1845/60. In yen it fell to 1.6275/85 against 162.95/05. Sterling firmed to $U51.5440/50 against $U51.5425/35.

In New York, the dollar closed lower and at its poorest levels in about six weeks, amid speculation that the Federal Reserve Board may soon act to reduce interest rates in order to stimulate a listless U.S. economy. “The demand and need for rate cuts seems very strong,” a dealer said. News on Monday (early yesterday N.Z. time) of a sharp, 11.6 per cent drop in U.S. home sales for May compounded the picture of a sluggish economy. Selling pressure gathered pace as the dollar broke through key chart points against the mark. It closed at the day’s low of 2.1830/40 marks, down from 2.2010/20 at Friday’s finish. Dealers described Monday’s action as a follow through from Friday, when dollar sentiment was hurt by a wider than anticipated U.S. trade deficit for May, which encouraged a perception that the U.S. unit may have to ease further to redress trade imbalances. The U.S. trade deficit news was underscored by Japan’s record SUSB.3O billion trade surplus last month. “The market appears to believe that a U.S. discount rate cut is just around the corner,” a trader said. Dealers noted a belief that this may occur in concert with a Japanese cut shortly after that country’s July 6 elections. While West Germany has expressed reluctance to lower rates, anticipation of co-ordinated international interest rate reductions was fuelled by the Bundesbank’s scheduling of a press conference after its council meeting tomorrow, dealers said. “Some traders are look-

Ing for significant news on West German monetary policy on Thursday which may pave the way for possible rate cuts in the United States,” one analyst said. The dollar also breached the key chart level of 1.7900 Swiss francs before closing at 1.7795/10 Swiss francs, off from 1.8010/20 at the end of last week. Dealers said fear of central bank intervention to support the dollar failed to staunch losses. The Bank of Japan bought about SUS4OO million in Tokyo, dealers said, but the U.S. currency still slipped below the psychologically important 165 yen level. The dollar finished at 162.90/00 yen, off from 165.30/40 on Friday. Dollar selling quickened on the closing of the Chicago futures market, where other currencies ended near day’s highs. Dealers said the dollar’s losses in the cash market were also accelerated by late corporate sales from Europe and Australia. In Sydney, the Australian dollar closed at a record trade weighted low and record lows against many major currencies after heavy selling following the Federal Government’s removal of some exemptions on withholding tax. The dollar closed at $U50.6620/30 — near the day’s lows of 0.6610 — after pushing to a high of $U50.6750 on Initial buying following the tax announcements. Dealers said the removal of exemptions is expected to see a sharp reduction in the level of offshore borrowings. The Australian dollar has been supported partly in the past year by the inflow of funds from Eurodollar issues.