Dollar Weakens Against Euro But Off Lows



Kiwi Drops on Central-Bank Intervention; Real Slumps

By Andrea Wong 2014-09-29T17:39:32Z

New Zealand’s dollar reached a 13-month low against its U.S. counterpart after the nation’s Reserve Bank said its currency sales in August were the most in seven years.

Brazil’s real tumbled to the weakest in almost six years after a poll showed President Dilma Rousseff widened her lead over opposition candidate Marina Silva. The U.S. dollar headed for its biggest monthly gain since 2012 as consumer spending in the U.S. rebounded in August. The kiwi slid against most of its 31 major peers as New Zealand Prime Minister John Key was reported as signaling the currency needs to be weaker.

“Key is trying to burst the bubble,” Douglas Borthwick, head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. “He’s saying, ‘New Zealand is an attractive place, but is it really that attractive?’”

New Zealand’s dollar dropped 1.2% to 0.7773 USD/NZD at closing New York time. It slid as much as 2% to 0.7709, the lowest since August 2013.

The euro was little changed at 1.2690 USD/EUR after falling earlier to 1.2664 USD/EUR, the weakest level since November 2012. The dollar rose 0.1% to 109.44 JPY/USD and touched 109.75, the most since August 2008. Europe’s shared currency gained 0.2% to 138.89 JPY/EUR

Brazil’s Polls

Brazil’s currency dropped as much as 2.4% to 2.4781 BRL/USD, the weakest intraday level since December 2008, before closing at 2.4468, down 1.1%. The drop occurred even as a Brazilian central bank board member on Monday said the bank could quickly raise interest rates, if needed, to battle inflation but offered no clues as to when that could happen. The central bank last week kept its benchmark Selic rate on hold at 11% for the third straight time even after the economy fell into recession. The real has lost 9.5% this quarter, the biggest drop since the three months through September 2011.

Rousseff’s support rose to 40% for the Oct. 5 first-round vote, according to a Datafolha poll published Sept. 26 after markets were closed, up from 37% in the previous Datafolha survey released Sept. 19. Silva’s first-round support fell to 27%, down from 30%. Speculation that a new government would revive economic growth had helped to push the real to a one-month high on Aug. 29.

German Inflation

The euro rose versus most of 16 major peers after data showed inflation in Germany, calculated using a harmonized European Union method, rose to an annualized 0.8% this month from a year earlier, beating economists’ estimate of 0.7%. In the U.S., inflation remained flat this month with a 1.7% annualized rate, well below the Federal Reserve's longer term 2% target.

The single currency fell last week after Germany’s Ifo institute said its business-climate gauge slid to the lowest since April 2013.

European Central Bank (ECB) policy makers meet Oct. 2. President Mario Draghi said last week the bank is able to implement more stimulus if required to stave off the threat of deflation in the euro area. He signaled this month he intends to expand the ECB’s balance sheet by as much as EUR 1 billion (USD 1.3 billion) with stimulus measures.

The Fed is considering when to raise interest rates for the first time since 2006 as the ECB and the Bank of Japan use monetary stimulus to spur slumping economies.

‘Creating Opportunities’

Central banks are “creating opportunities in the currency and rates markets,” Mihir Worah, who has taken over management of Pacific Investment Management Co.’s total return strategy with Mark Kiesel and Scott Mather, said on Pimco’s website. “Divergent monetary policy is likely to mean continued strength in the dollar, particularly against the euro and yen.”

Consumer spending in the U.S. increased 0.5% after little change in July, Commerce Department figures showed today in Washington. The median forecast in a Bloomberg survey called for a 0.4% gain. Incomes increased 0.3%.

New Zealand’s Key said the so-called Goldilocks level for the kiwi dollar is around 65 cents, Interest.co reported, citing comments to reporters. While it was logical for the central bank to intervene at these levels, Key wasn’t aware of such a move, he was reported as saying.

Reserve Bank of New Zealand (RBNZ) data released today showed the central bank sold a net NZD 521 million (USD 405 million) of the local currency in August, the most since July 2007.

“Not only do you have the PM looking for a lower kiwi, you also have a larger-than-expected RBNZ transaction, showing they intervened at a larger capacity than the market was looking for,” Matthew Derr, a foreign-exchange strategist at Credit Suisse Group AG, said by phone from New York. “We do remain bearish on the cross.”

The kiwi has declined 4% in the past month, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback has gained the most, adding 4 percent. The euro added 0.2%, while the yen dropped 1.6 percent.

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