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U.S. dollar regains its mojo, NZD also in demand
July 24, 2013 / 5:11 AM / in 4 years

U.S. dollar regains its mojo, NZD also in demand

SYDNEY (Reuters) - The dollar was broadly higher on Thursday as upbeat U.S. housing data and a rise in Treasury yields reminded investors the country was still closer to tempering its monetary stimulus than any other major economy.

Light is cast on a Japanese 10,000 yen note as it's reflected in a plastic board in Tokyo, in this February 28, 2013 picture illustration. REUTERS/Shohei Miyano

The dollar edged back up to 100.32 yen, from a low around 99.37, while the euro recoiled to $1.3196 from a one-month peak around $1.3256.

Against a basket of currencies, the dollar broke a three-day losing run to reach 82.298 .DXY from a trough of 81.937. It fared even better against commodity currencies, such as the Australian dollar, which were undermined by soft Chinese manufacturing data (PMI).

“Dollar strength is back on the menu - especially against higher-beta currencies - following stronger-than-expected US data and the weak China PMI,” Barclays said in a client note.

The Australian currency was down sharply at $0.9153 having shed a full cent overnight.

Figures out of the United States showed new-home sales jumped to a five-year high in June and an acceleration in factory activity in July, boosting hopes of a third-quarter pick-up in economic growth.

That contributed to a rise in 10-year Treasury yields to 2.58 percent, and the dollar has been highly correlated to yields in recent weeks as the market priced in the start of tapering by the Federal Reserve.

Even Europe boasted better news with German and French PMI surveys beating expectations <TOP/CEN>. Yet the recovery remains tentative at best and analysts assume the European Central Bank will keep monetary policy accommodative for some time to come.

New Zealand’s dollar bucked the trend and rallied after markets detected a more hawkish tone from the Reserve Bank of New Zealand. The kiwi popped up a third of a U.S. cent to $0.7977, and away from a low of $0.7906.

While the central bank reiterated that it expected to keep rates steady through to year-end, it noted that a tightening would likely have to come at some point.

“It was slightly on the hawkish side, relative to expectations,” Jane Turner, a senior economist at ASB Bank, said.

“There was a lot more emphasis on the potential inflation spillover from construction costs and housing market,” she added. “We still expect the RBNZ to first lift the official cash rate in March 2014.”

If that prediction proves correct, New Zealand could well be the first developed nation to begin tightening this cycle.

In contrast, Australia’s central bank is still thought likely to cut rates again, and perhaps as early as August given a subdued economy and benign inflation.

As a result, the Aussie slid to its lowest since late 2008 against its New Zealand counterpart at NZ$1.1465.

Editing by Alison Williams

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