Dollar jumps as Intel result stokes risk appetite

Wednesday 14th October 2009

The New Zealand dollar surged after Intel Corp., the world’s biggest maker of computer chips, forecast fourth-quarter sales and earnings that beat estimates, stoking risk investors’ risk appetite and demand for higher-yielding currencies.

Intel forecast fourth-quarter revenue of US$9.7 billion to US$10.5 billion, more than market consensus of US$9.5 billion, and chief executive Paul Otellini predicted growth in the PC market this year.

The results, posted after the close of trading on the New York Stock Exchange, lifted optimism that US third-quarter earnings will be better than expected, signaling a recovery in economic activity. In New Zealand, the central bank announced the withdrawal of measures designed to ensure sufficient liquidity in financial markets starting on November 1, citing improved global credit markets.

Intel’s results have seen “some risk appetite come into the game,” helped lift higher yielding currencies like the kiwi, said Danica Hampton, currency strategist at Bank of New Zealand. The RBNZ’s move is consistent with central banks around the world winding back these measures and isn’t a big surprise. The facilities weren’t used much, she said.

The New Zealand dollar rose to 73.88 US cents from 73.34 cents before Intel’s announcement and up from 73.61 cents late yesterday. The kiwi rose to 81.26 Australian cents from 81.05 before Intel and has slipped from 81.35 cents yesterday. It bought 49.73 euro cents, up from 49.49 cents before the Intel statement and down from 49.84 cents yesterday.

The kiwi dollar traded at 66.21 yen from 65.84 yen pre-Intel and 66.33 yesterday.The trade-weighted index rose to 66.46 from 66.07 earlier and is little changed from 66.45 yesterday.

Hampton said the kiwi may struggle to top last week’s high against the greenback of 74.50 cents.

Good economic and corporate news out of the US tends to weigh on the greenback because it encourages investors to see the world as a safer place and encourage them to sell dollars and the yen to buy currencies that offer better returns.

The Federal Reserve’s interest rate target of zero to 0.25% is more than 2 percentage points lower than New Zealand’s 2.5% official cash rate and 3 percentage points below the Reserve Bank of Australia’s key rate. The Australian dollar jumped to 90.85 US cents after the Intel results from 90.52 cents.

Federal Reserve Vice Chairman Donald Kohn told economists in St. Louis yesterday that record-low US interest rates may be in place for “quite some time.”Inflation in the US would probably remain benign as the world’s largest economy moves through a gradual recovery, he said.

New Zealand’s Consumer Price Index rose 0.8% in the third quarter from 0.6% three months earlier, government figures tomorrow are expected to show. The annual rate probably sank to 1.2%, near the bottom end of the RBNZ’s 1% to 3% target range.

Today, the government’s accounts for the 12 months ended June 30 may show “some fairly dismal looking underlying cash flows” with the numbers close to those forecast in the budget, BNZ’s Hampton said.

The RBNZ is officially planning to keep the OCR near current record low levels through until the second half of 2010.

Traders are betting the RBNZ will hike the OCR by about 150 basis points over the next 12 months, according to a Credit Suisse index based on the Overnight Index Swap curve.

Hampton predicts Bollard will raise rates by 25 basis points in January.

Businesswire.co.nz

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