Dollar hits 10-month high

Wednesday 5th August 2009

The New Zealand dollar climbed over 67 US cents to a ten-month high as a jump in the price of milk powder sold on Fonterra Cooperative Group’s online auction stoked appetite for the kiwi currency.

The price of milk powder surged 26% to US$2,301 per metric ton, according to Fonterra’s globalDairyTrade website, the highest average price since November. The auction result adds to signs of stronger demand for raw materials as the global economic slump abates, which has driven up prices of everything from logs to metals and fueled investors’ risk appetite. The Chicago Board Option Exchange’s Volatility Index, also known as the ‘fear index’, fell 4.3%.

“Fonterra’s result was a lot stronger than expected” and saw a late swing of support for the kiwi,” said Danica Hampton, currency strategist at Bank of New Zealand. “The fundamental backdrop supports a fairly strong currency.”

The kiwi jumped to 67.35 US cents from 66.66 cents yesterday, and climbed to 62.31 on the trade-weighed index, or TWI, a measure of the currency against a basket of five trading partners, from 61.67. It surged to 64.13 yen from 63.10 yen yesterday, and advanced to 79.72 Australian cents from 79.27 cents. It increased to 46.73 euro cents from 46.27 cents yesterday.

Hampton said the currency may trade between 66.80 US cents and 67.50 cents today as it continues to push higher in the next couple of sessions.

She expects it will reach 68.50 cents in the coming week, but doubts there’s enough support to break 70 cents. “That will probably prove to be too much” with the local economy demanding a weaker currency to help itself rebalance, she said.

The New Zealand dollar was dragged higher yesterday by better-than-expected house price data and solid retail sales in Australia. Reserve Bank of Australia Governor Glenn Stevens left rates unchanged at 3%, and reiterated the central bank has adopted a neutral, rather than easing, bias.

The Household Labour Force Survey, due out tomorrow, will probably show the unemployment rate climbed to 5.6%, according to a Reuters survey, while the employment participation rate is forecast to fall to 68.3%.

Businesswire.co.nz

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