Zeev's Turnips Patch-No Politics (ZEEV)

[gigem77]

Forex - Dollar boosted by fall-out in peripheral currencies
Friday, June 23, 2006 9:52:27 AM
http://www.afxpress.com


LONDON (AFX) - The dollar was well bid across the board, benefiting from a fall out in peripheral currencies, notably the Kiwi dollar. Market reaction to news that New Zealand's current account deficit has ballooned to 9.3 pct of its GDP was somewhat perverse as it led to flows into the US currency. The US, after all, has a sizeable and growing current account gap of its own

"The dollar has rebounded across the board as the spill over effects from the unwinding of positions in high yield and commodity currencies," BNP Paribas analysts said

However, they warned that the dollar's fine run may come to an abrupt end

"We would not expect the dollar recovery to persist beyond the current position adjustment," they added

New Zealand's current account gap has highlighted the problem about global imbalances and will likely be a negative for all current account deficit currencies including the dollar

And, concerns about the structural imbalances facing the global economy are not likely to go away with the likes of the IMF warning about potentially severe effects throughout the world

That aside, there was also some support for the dollar from expectations among more aggressive risk-takers that the Fed may deliver a hefty 50 basis point rate hike next Thursday, instead of the usual 25

This view, however, is only held by a minority. Markets have fully priced in a quarter point rate increase to 5.25 pct and are betting on a follow up hike in August

"We believe that the dollar will also become vulnerable to slowing US growth and thus higher interest rates, declining equity markets and signs a slowing housing sector do not bode well," BNP Paribas analysts said

The data calendar is light today but attention will be on US durable goods orders or May. A 0.4 pct rise in May is predicted after see-sawing in the previous two months, mostly due to aircraft orders

If the data disappoints, the dollar may well drift lower