Dollar gains as Citigroup bailout builds appetite for risk

By Paul McBeth

Tuesday 25th November 2008

The New Zealand dollar rose a second day after US and European stocks rose on a rescue package for Citigroup and a UK spending plan to halt its recession, lifting investor appetite for higher-yielding, or riskier, assets.

The US government pledged to guarantee US$306 billion of toxic assets owned by Citigroup in a package that will be passed by the Congress in January. The package saw the banking giant�s stocks rise 52%, paring its 60% loss in value last week.

European stocks were buoyed by English Chancellor of the Exchequer Alistair Darling�s 20 billion pound recovery package for the British economy. The FTSE 100 bounced 9.8% and the DAX 30 jumped 10.3% on the news.

�The rise in equities has set the tone for the kiwi,� said Imre Speizer, currency strategist at Westpac Banking Corp. �There�s been a drop in risk aversion.�

The New Zealand dollar rose to 54.42 US cents from 52.94 cents yesterday, and increased to 52.66 yen from 50.45 yen. It fell to 84.14 Australian cents from 84.44 cents.

Speizer said while the 54 US cent mark was a �key lead� for the kiwi, it is still expected to trend lower in the long-term. He said the New Zealand dollar will likely trade between 54 US cents and 55.50 cents today.

The rebound in global stocks reinvigorated appetite for the kiwi and may last �for a while,� said Danica Hampton, currency strategist at Bank of New Zealand.

The UK government�s stimulus package helped offset gloomier figures in Germany, where the latest Ifo business index fell to 85.8 in November, its lowest point in 16 years.

The fall in the Ifo index suggests the Eurozone recession will probably go �well into 2009,� Hampton said. The ongoing fears of a deep global recession will continue to see support for the US dollar and yen, she said.

www.businesswire.co.nz

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