Dollar gains as Goldman, Intel results boost Wall St

Wednesday 15th July 2009

The New Zealand dollar gained as better-than-expected results from investment bank Goldman Sachs Group and chip-maker Intel stoked appetites for higher-yielding, or riskier, currencies.

Goldman Sachs boosted its second-quarter earnings to US$3.44 as it took advantage of record volatility in trading markets, as the Chicago Options Board Exchange’s Volatility Index tumbled 55% to as low as 25.35 this year.

Intel posted a loss of US$398 million in the three months ended June 27, but boosted its forecast revenue for the third quarter to US$8.9 billion. Equity markets edged higher on the strong results, and encouraged investors to support commodity currencies such as the kiwi as they search for higher yields.

“There’s been a significant spike in US equities after hours, which led to a spike in all risk currencies,” said Imre Speizer, currency strategist at Westpac Banking Corp. “Earnings week was always going to be volatile” and there will probably be weaker results in the next couple of days, he said.

The kiwi jumped to 64.04 US cents from 63.35 cents yesterday, and climbed to 60.52 on the trade-weighted index, or TWI, a measure of the currency against five major trading partners, from 59.90. It climbed to 59.93 yen from 58.99 yen yesterday, and advanced to 45.83 euro cents from 45.32 cents.

It was little changed at 80.56 Australian cents from 80.39 cents yesterday.

Speizer said the currency may trade between 63 US cents and 64 cents today, with “very strong resistance” at the top of the range. If it breaks through that barrier, “it could see a good flow.”

Currency traders ignored the “bullish comments” from the Reserve Bank Governor Alan Bollard yesterday, Speizer said. Bollard told a business audience the economy would probably recover before other developed nations, but would require a weaker kiwi to rein in the current account deficit.

Financial markets need to downgrade their assessment of the New Zealand dollar to stoke the export market and discourage imports Bollard said, but he admitted the exchange rate was largely out of his hands.

“All that can be hoped for is that, in the next phase of recovery in financial market sentiment and return to risk-seeking, the markets will be more discriminating about New Zealand,” he said.

In Europe, sentiment soured a little as the German ZEW survey of economic confidence fell in July to 39.5 from 44.8 the previous month.

Danica Hampton, currency strategist at Bank of New Zealand, said the downturn in German sentiment is “hardly surprising given the fact that domestic demand remains depressed and the strong value of the euro continues to weigh on the economy's ability to generate export-led growth.”

The European Central Bank’s reluctance to ease monetary policy further will probably push a recovery in the Euro-zone into next year, she said.

Businesswire.co.nz

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