Dollar gains as markets shake off Dubai fears

Wednesday 2nd December 2009

The New Zealand dollar climbed after the market shook off fears about a potential default by Dubai World amid a pick-up in US home sales, while the Bank of Japan introduced a form of quantitative easing.

Stocks on Wall Street and in Europe climbed as investors decided to ignore the prospect of a default by investment company Dubai World, which has some US$59 billion worth of liability, and were disappointed by expansion of liquidity provisions by the Bank of Japan.

Pending home sales in the US rose 3.7% to the highest level in three years, stoking optimism the property sector is recovering in the world’s largest economy. New manufacturing orders also rose in the US after two monthly declines, though the headline manufacturing number was a little softer.

“Everyone’s ignoring Dubai, the Bank of Japan was quite disappointing, and offshore data was reasonable,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

“The US dollar fell to a new low, and the kiwi’s not going to drop until that turns – there’s no point fighting the tide, but when it goes, it’ll be nasty.”

The kiwi climbed to 72.75 US cents from 72.40 cents yesterday, and gained to 64.35 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.23. It edged lower to 78.47 Australian cents from 78.57 cents yesterday and rose to 63.01 yen from 62.93 yen. It advanced to 48.20 euro cents from 48.03 cents yesterday and slipped to 43.73 pence from 43.82 pence.

Kelleher said the currency will probably get bought on dips around 72/72.50 US cents today as it heads back towards 73.50 cents.

The price of milk powder edged up 3.6% today on Fonterra Cooperative Group’s online auction to a 15-month US$3,560 per metric ton and is expected to further support the kiwi dollar today as hard commodities, such as gold, climbed higher in the New York session.

Japan’s central bank called an emergency meeting yesterday, which initially encouraged investors to pare back their risk positions.

This reversed when traders were disappointed that the Japanese policy-makers introduced a facility to lend an extra 10 trillion yen at a fixed rate of 0.1% to help the recovery of the world’s second-largest economy and curb some of the strength in the yen.

Yesterday, Australia’s central bank hiked interest rates for a third month in a row to 3.75%, widening the yield differential between the trans-Tasman nations, as Governor Glenn Stevens gradually repositions the so-called “lucky country” to normal policy settings after it dodged a recession and resumes growth.

Businesswire.co.nz

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