Dollar nears two-week high on US earnings, Chinese data

Thursday 16th July 2009

The New Zealand dollar pushed near a two-week high as a better-than-expected outlook for US corporate earnings spurred a rally in global stock markets, while Chinese data showed the world’s fourth-largest economy boosted its money supply, underpinning commodity currencies such as the kiwi.

A strong forecast from Intel Inc., the world’s largest computer chip maker, helped fuel gains in equity markets, with the Dow Jones Industrial Average rising 3.1%.

The Chinese government boosted its foreign exchange reserves to more than US$2 trillion. China’s currency regulator the State Administration of Foreign Exchange relaxed rules for Chinese companies investing offshore, further supporting commodity currencies such as the kiwi.

The Dollar Index, a measure of the currency against a basket of six trading partners, held below 80 at 79.42.

“Earnings definitely helped equities again with 2% or 3% gains across the board,” and along with the Chinese data helped stoke appetite for higher-yields, said Brendan Marsh, from the Bank of New Zealand’s foreign exchange desk. The relaxation in rules for Chinese companies investing offshore will let them boost their foreign holdings, “working in favour of currencies in general.”

The kiwi climbed to 64.92 US cents from 64.07 cents yesterday, and advanced to 61.09 on the trade-weighted index, or TWI, a measure of the currency versus the Australian dollar, greenback, yen, euro and pound, from 60.38.

It jumped to 61.19 from 69.98 yen yesterday, and increased to 46.03 euro cents from 45.59 cents. It gained to 80.75 Australian cents from 80.29 cents yesterday.

Marsh said the currency may trade between 64.50 US cents and 65.25 cents today, and get pushed higher on the glut of Chinese data out today.

“If we have another surge in risk appetite, we could very quickly rise to early June levels of 66 cents,” he said.

The world’s fourth largest economy will release second-quarter gross domestic product, inflation, retail and manufacturing figures today, and any improvement in the outlook for China could add to the bullish sentiment in the market, Marsh said.

Statistics New Zealand will announce the consumer price index for the three months ended June 30 today, but with annual inflation not forecast to rise above 2.3% before 2012 by the Reserve Bank, it’s unlikely to have much impact on the currency today. CPI is expected to track at an annual 1.8% for the period, according to a Reuters survey.

The Federal Open Market Committee didn’t see the need to print more money, despite its forecast of a weak economy, according to minutes from its June meeting. The FOMC upgraded its growth forecasts, but didn’t discuss any exit strategy from its quantitative easing programme.

Businesswire.co.nz

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