Euro notches one-year high; kiwi rallies on current-account data, milk prices
By William L. Watts, MarketWatch
LONDON (MarketWatch) -- Good news for New Zealand's dairy farmers helped the nation's currency lead gains versus the U.S. dollar Tuesday, contributing to a broadly lower move by the greenback.
The U.S. unit plunged against the New Zealand dollar, widely known as the kiwi, after government data showed the island nation's current-account deficit shrank to its lowest level since 2004.
The U.S. unit fell to NZ$1.3820, its lowest level in 13 months. The dollar recently fetched NZ$1.3852, a decline of 2% on the day.
In addition, New Zealand's Fonterra Cooperative Group, the world's largest milk exporter, boosted its milk-price forecast for the year ahead by 12%, a development that was seen as a positive for the economically important dairy sector, noted Daragh Maher, currency strategist at Calyon Bank.
Taken together, the figures added to a pro-risk environment that has helped undermine the dollar's performance this year, Maher said. The dollar has tended to come under pressure as investors move money into equities and higher-yielding assets.
Against this backdrop, the dollar index (DXY 76.12, -0.66, -0.86%) a measure of the greenback against a trade-weighted basket of rival currencies, fell to 76.139 from 76.780 Monday night
The euro pressed above the $1.48 level for the first time in a year and remained solidly higher at $1.4784, up from $1.4690 late Monday in North American trading.
The British pound also gained, up 0.8% to change hands at $1.6330.
Meanwhile, the dollar traded at 91.41 Japanese yen, little changed from 91.43 yen on Friday.
The Asian Development Bank boosted its growth forecast for the developing nations of Asia, adding to the pro-risk tone, analysts said. See full story.
Markets in Japan, Malaysia and Indonesia were closed for public holidays, while other Asian markets posted a mixed finish. See full story.
European markets gained ground, however, and U.S. stock index futures pointed to a higher open for Wall Street. See Europe Market. Read Indications.
The hard-pressed dollar had gained some ground Monday as equity markets weakened, with traders tying a decline in risk appetite to caution ahead of the Federal Reserve's two-day policy meeting, which begins Tuesday, as well as the summit of Group of 20 leaders at the end of the week.
But Tuesday's resumption of risk appetite may reflect views in the market that neither event is likely to produce meaningful changes, Maher said.
Eye on Treasurys
Meanwhile, Tuesday's auction of $45 billion of U.S. two-year Treasury notes, the first of three auctions scheduled for this week, is likely to be the key event on an otherwise light global economic calendar, wrote strategists at Lloyds TSB.
"Solid demand at auctions of different maturities this summer suggest today's two-year sale should be fairly well received, though the 6-basis-point drop in yields since the Aug. 25 auction (higher price and more expensive relative to other curve sectors) and a depreciating U.S. dollar could test overseas confidence," they wrote.
"All in all, the Fed's determination to keep rates low should keep short-dated paper fairly attractive," the strategists told clients.
