Kiwi gains on US money-printing speculation

Thursday 21st October 2010

The New Zealand dollar clawed back yesterday's losses amid speculation on the likely size of another Federal Reserve asset purchase programme.

Medley Global Advisors, a consultancy used by hedge funds, released a report speculating the Fed will embark on its second round of printing money and will buy up to US$500 billion over the next six months.

That encouraged investors to shun the greenback, and the Dollar Index, a trade-weighted measure of the US dollar, dropped 1% to 77.18.

Better earnings from American corporates helped stoke investors' appetite for higher-yielding assets, with Delta Air Lines, US Airways Group and Yahoo! beating analysts' forecasts.

"The US dollar hit the skids overnight as prospects for Fed quantitative easing returned to the spotlight," said Mike Jones, strategist at Bank of New Zealand.

"We're hearing ongoing chatter there's diversification into euro and Aussie, mainly from Asian central banks, and that will continue to drag the kiwi higher."

The kiwi climbed to 75.44 US cents from 74.66 cents yesterday, and rose to 66.87 on the trade-weighted index of major trading partners' currencies from 66.61. It gained to 61.21 yen from 60.71 yen yesterday, and slipped to 76.46 Australian cents from 76.54 cents.

It fell to 54.03 euro cents from 54.17 cents yesterday, and increased to 47.61 pence from 47.51 pence.

Jones said the currency may trade between 74.50 US cents and 76 cents today, with a fair amount of event risk leaving it open to some big moves.

Local immigration will probably show net migration is still positive, while consumer confidence is finely balanced, he said.

A slew of Chinese data will keep investors on their toes after the People's Bank of China hiked its benchmark interest rate a quarter-point yesterday, raising anticipation the world's second-biggest economy is starting to show inflationary pressures.

The British government announced an austerity budget to cut 80 billion pounds of spending and reduce the fiscal deficit to 2.1% by 2014/15 from 10.1%.

Businesswire.co.nz

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