Dollar holds above 67 US cents as Wall Street gains

Thursday 20th August 2009

The New Zealand dollar held above 67 US cents after volatile overnight trading, as stocks on Wall Street gained on rising oil prices, better-than-expected company results, and absorbed concerns over Chinese economic recovery.

The price of Brent crude oil rose 3% to US$74.59 a barrel as US inventories unexpectedly fell by 8.4 million barrels last week, according to the US Energy Information Administration, helping boost energy company stocks.

The Standard & Poor's 500 index gained 0.7%, as more upbeat results from John Deere added to the optimistic earnings season in the US. Wall Street ignored concerns about the Chinese economy after a 5.3% decline on the Shanghai Composite Index sparked risk aversion earlier in the day.

"U.S. equity markets shrugged off some weakness in Asian markets" and revived investors' appetites for higher-yielding assets, said Mike Jones, strategist at Bank of New Zealand.

After a volatile night that saw the kiwi bounce around, it settled "in the same range, and we haven't seen it break any key levels in recent days," he said.

The kiwi gained to 67.35 US cents from 66.94 cents yesterday, and was little changed at 62.78 on the trade-weighted index, or TWI, a measure of the currency versus a basket of five trading partners, from 62.71.

It rose to 63.36 yen from 63.13 yen yesterday, and slipped to 47.35 euro cents from 47.45 cents. It dropped to 81.25 Australian cents from 81.61 cents yesterday.

Jones said the currency may trade between 66.45 US cents and 67.80 cents today as it continues to follow equity markets. Asian markets will be important for the currency as investors revise their expectations for China.

"The Shanghai Composite Index is still up 75% from its lows in March - people are just less optimistic about the speed of the recovery" in China, he said.

The Bank of England released the minutes from its last meeting, showing three members, including Governor Mervyn King, wanted to increase its quantitative easing programme by 75 billion pounds rather than the 50 billion pounds decided on. The New Zealand dollar was little changed at 40.77 pence from 40.83 pence yesterday.

Prime Minister John Key told a business audience in Melbourne a shared trans-Tasman currency had merit, but was unlikely to occur as it would require New Zealand to give up control of monetary policy. New Zealand needed to keep its fiscal independence in case of an economic catastrophe, he said.

Businesswire.co.nz

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