Commodity currencies rise as China cuts rare earth exports
by Paul McBeth
Dec. 29 (BusinessDesk) – The New Zealand dollar followed its Australian and Canadian counterparts higher as China cut rare earth exports, while the greenback was hit by weaker U.S. data.
The Thomson Reuters/Jefferies CRB index, a broad measure of 19 commodity prices, rose 0.7% after China’s Commerce Ministry reduced its export quotas for rare earth minerals by 11%, reducing supply for the commodities.
That stoked demand for so-called ‘commodity currencies’ after a 25 basis point rate hike by the People’s Bank of China on Christmas Day had earlier put them under pressure.
The greenback was put under pressure after American consumer confidence unexpectedly fell this month, while house prices also disappointed. “The Australian and Canadian dollars soared on the Chinese quota and the kiwi was dragged higher,” said Mike Jones, strategist at Bank of New Zealand.
“Since Christmas, the strong support for commodity currencies has been the main them for markets.”
The kiwi rose to 74.58 U.S. cents from 75.26 cents yesterday, and gained to 68.03 on the trade-weighted index of major trading partners’ currencies from 67.71.
It increased to 62.16 yen from 62.04 yen yesterday, and was little changed at 74.64 Australian cents from 74.66 cents.
It climbed to a six-month high of 57.60 euro cents from 56.94 cents yesterday, and rose to a six-week high 49.13 pence from 48.67 pence.
The kiwi climbed to its highest level against the euro since June 23 after the European Central Bank said it didn’t absorb as much money into seven-day term deposits as it created in its bond purchases.
The near 13 billion euro shortfall has the same effect as quantitative easing.
Jones said the currency may trade between 75.20 U.S. cents and 75.80 cents today on thin trading with most participants in the local session away on holiday.
Still, the recent strength may attract “frustrated exporters” looking to hedge as the kiwi remains on an upward trend, he said.