Dollar heads for over 16% quarterly gain on risk appetite

Tuesday 30th June 2009

The New Zealand dollar climbed back over 65 US cents and is heading for a quarterly gain of more than 16% as rising confidence the global economic slump has past its worst revives investors’ appetite for higher-yielding, or riskier, assets.

A gain in oil prices and a better-than-expected survey of business confidence in Europe helped boost equity markets and encouraged investors to eschew the relative safe havens of the US dollar and yen.

The Standard & Poor’s 500 Index gained 0.9% as the Chicago Board Options Exchange’s Volatility Index, or VIX, fell 1.4% to 25.26, below the level prior to the Lehman Brothers’ collapse in September.

New Zealand’s currency benefited from the revival in risk appetite, with traders confident the country’s economy will weather the global recession.

“The kiwi has benefited from the sense the New Zealand economy is surviving and is in relatively good shape,” said Danica Hampton, currency strategist at Bank of New Zealand. “Equity markets encouraged risk appetite.”

The New Zealand dollar gained to 65.02 US cents from 64.68 cents yesterday, and advanced to 61.25 on the trade-weighted index, or TWI, a measure of the currency against a basket of major trading partners, from 61.03.

It increased to 62.44 yen from 61.70 yen yesterday, and was little changed at 46.16 euro cents from 46.12 cents. It slipped to 80.45 Australian cents from 80.55 cents yesterday.

Hampton said the currency may trade between 64.70 US cents and 65.50 cents today and will probably fail to break through the key 66 cents barrier that has been the kiwi’s ceiling this month.

Still, the New Zealand dollar may struggle to extend its 16% gain this quarter, Hampton said. “The question is whether it’s sustainable” and with export prices likely to show signs of struggling and the extremely large amount of uridashi and eurokiwi bonds maturing next month, it should “underperform” in July, she said.

Tomorrow’s globalDairyTrade online auction for milk solids will be the first indication as to whether the US Agriculture Department’s subsidies for dairy farmers have resulted in lower dairy prices. Irrespective of the result, it should translate to a lower payment for New Zealand farmers as the strong kiwi erodes the value of Fonterra Dairy Cooperative’s exports, Hampton said.

Meanwhile, today’s release of the National Bank Business Outlook, a quarterly survey of business confidence, will show whether the global turnaround in sentiment is becoming embedded in New Zealand.

Businesswire.co.nz

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