Dollar extends gains on rising commodities, US fiscal package

-Paul McBeth

Wednesday 7th January 2009

The New Zealand dollar extended its gains as prices for commodities rose and U.S. President-elect Barack Obama pressed Congress for a larger fiscal stimulus to revive the world's biggest economy.

The Reuters/Jeffries CRB Index of 19 raw materials climbed 2.8% as members of the OPEC cartel prepared to reduce shipments and natural gas supplies in Europe were slowed by Russia's dispute with neighbouring Ukraine. Obama has proposed a US$775 billion fiscal stimulus package of tax cuts and investment in infrastructure over two years. About 49% of New Zealand's NZ$42 billion of exports in the 12 months to October was made up of milk, meat, oil, timber and aluminium.

"Another solid performance from global equities and firmer commodity prices added to the support for high-yielding currencies like the New Zealand dollar," said Danica Hampton, currency strategist at Bank of New Zealand.

The kiwi rose to 59.59 U.S. cents from 58.43 cents yesterday and jumped to 55.91 yen from 54.72 yen. It was down to 82.38 Australian cents from 82.55 cents yesterday, and was up to 44.15 euro cents from 43.55 cents.

Hampton said the kiwi dollar may trade between 58 U.S. cents and 60 cents today, with support around 58.80 cents. The rally in the kiwi "won't last all January," as more data comes out and bursts the "lingering optimism from New Year."

Merchandise trade figures today may show the trade deficit narrowed to NZ$838 million in November from NZ$942 million, according to a Reuters survey. The annual gap may have widened to NZ$5.5 billion from NZ$5.2 billion.

The Reserve Bank is scheduled to review monetary policy on January 29 and economists predict it will extend the steepest easing cycle since the official cash rate was introduced in 1999.

Bucking the commodity trend, the average price for wholesale milk powder slumped 9.3% at yesterday's online Fonterra auction to US$2,017 per tonne, 50% lower than when online auctions began in July.

(Businesswire.co.nz)

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