FRANKFURT (Reuters) – European Central Bank President Jean-Claude Trichet said U.S. commitment to a strong dollar is important in keeping currency markets and the global economy stable.

Trichet also told Italy’s Corriere della Serra newspaper that he welcomed a reference in the Group of 20 summit communique that a sense of normalcy should not lead to complacency.

“I consider very important for the stability of the exchange rates and the prosperity of the global economy that (U.S. Federal Reserve) Chairman Ben Bernanke, Treasury Secretary Tim Geithner and President (Barack) Obama underline ‘that a strong dollar is in the interest of the US’,” he said, according to an interview transcript published on the ECB’s Web site on Sunday. “I trust that it is not only true but that it is also very important for the global economic stability.”

(Reporting by Krista Hughes)

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Reserve Bank of New Zealand has its policy setting meeting later this week, which might be interesting. Last few weeks has witnessed increased strength on New Zealand dollar, in tandem with AUD. This is a cause for concern to RBNZ, which is not happy with lofty levels of the Kiwi. For some time now officials have been quietly mentioning more rate cuts, in effort to slow down, or stop NZD appreciation. They even put the option of intervention on the table, just like Canada have been threatening to do.

To date nothing came of BoC innuendos, and we have to wonder, what a rate cut would accomplish for RBNZ. Interest is already very low, and currencies are not driven by rate differentials. Observers point out that current NZD rise is connected to trade flow rather than monetary policy of any one country. Also, central bank might have little influence over given currency, if it is very popular, as is the case with New Zealand Dollar at the moment, or Aussie, too. However, looking a little closer at the details, perhaps, after all, we are dealing once again with the carry trade.

More about New Zealand Dollar

Market Review – 27/07/2009 22:21 All times in GMT
Dollar drops to lowest in more than seven weeks versus euro as economic prospects increase demand for higher-yielding assets

http://www.acetraderfx.com

The greenback traded near its lowest level this year against a basket of currencies on speculation the global economy is on the path to recovery from the worst recession since the Great Depression, reducing demand for safe-haven assets. The dollar index last traded at 78.635, close to the 78.334 level it reached on June 2. In addition, at the start of the U.S.-China Strategic and Economic Dialogue, both U.S. president Obama and Treasury Secretary Timothy Geithner urged Beijing to encourage more domestic consumption but did not repeat appeals to revalue the Chinese Yuan. Geithner also pledged the U.S. will reduce its budge deficit over the next four years and boost national savings.

Earlier in the day, Fed Chief Bernanke said that growth in second half of ‘09 may not be enough to bring down the U.S. jobless rate and that the Fed supports a strong dollar policy. Euro briefly dropped to 1.4172 after his comments, however, the single currency found buying interest on dips and hit a seven-week high of 1.4299 against the dollar as gains in global equities encouraged investors to be more risk-taking. Furthermore, German consumer sentiment rose to its highest level in over a year going into August as easing inflation left shoppers more willing to spend. In New York morning, U.S. new home sales data came in better than expected (384,000 units annual rate versus economists’ forecast of 350,000 units). Euro then retreated from an intra-day high of 1.4299 to 1.4204 as investors saw that the increase in home sales were supported by a 6-10% fall in house prices.

The British pound rose against the dollar on Monday as confidence in the strength of corporate earnings continued to support European equities (FTSE-300 index ended the day at its highest close since November 10) and helped sterling recover losses after last week’s much weaker-than-expected U.K. GDP data. Cable hit an intra-day low of 1.6382 in Asia and rallied back to as high as 1.6525 versus the greenback in European morning. The Bank of England said on Monday that British corporate credit conditions improved in the second quarter of the year, partly due to the central bank’s asset purchases. BoE also added that a rise in gilt yields over the period was related to expectations of higher BoE interest rates in the future and faster growth or inflation.

The Japanese yen weakened against higher-yielding currencies on Monday as safe-haven demand declined. Euro, aussie and sterling rose against the yen from 134.26 to 136.11, 77.20 to 78.62 and 155.20 to 157.47 respectively. Dollar also strengthened versus the yen from 94.67 to 95.39.

Data to be released on Tuesday include New Zealand trade balance, Australia NAB business confidence, U.K. CBI distribution trade, U.S. consumer confidence.