NZ dollar gains as Wall Street rallies, Bollard sees trough

Friday 13th March 2009

The New Zealand dollar rose above 52 U.S. cents for the first time since early February after Wall Street rallied for a third day and the Reserve Bank of New Zealand signaled the end to its steep easing cycle.

U.S. stocks rose as General Electric Co. shrugged off the loss of its triple-A credit rating with Standard & Poor's, and Bank of America Corp. announced it was profitable in the first two months of the year, and expects to post a full-year profit. The Dow Jones Industrial Average rose 3.3%. New Zealand's central bank Governor Alan Bollard cut the official cash rate an expected 50 basis points to 3% yesterday, and also signaled 2.5% would probably be the benchmark rate's trough, providing some optimism for investors looking for an end to the global slump.

"The market's taking some of the bearishness out of Bollard's statement," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. "The market's driven by fear" and any optimism is being seized on by traders, lifting high-yielding assets like New Zealand's dollar, he said.

The kiwi jumped to 52 U.S. cents from 50.82 cents yesterday, and rose to 50.83 yen from 48.66 yen. It increased to 79.68 Australian cents from 78.14 cents yesterday, and gained to 40.29 euro cents from 39.80 cents.

Kelleher said the currency may trade between 51.75 U.S. cents and 52.75 cents today as appetite for high-yielding, or riskier, assets increases on the global optimism.

The Swiss National Bank surprised the markets by saying it would purchase foreign currency to prevent further appreciate versus the euro. It cut rates 25 basis points to 0.25%. New Zealand's central bank forecast the recession will be "deeper and more prolonged" before beginning to recover half-way through this year, in its monetary policy statement for the March quarter.

Unemployment in Australia rose to a four-year high 5.2%, in a sign the global economic slump is reaching Australasia. Australia's economy is six to 12 months behind New Zealand's, and will likely continue to decline, said Kelleher. This will probably lend some support to the kiwi dollar against its trans-Tasman counterpart, he said.

By Paul McBeth, Businesswire

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