Dollar holds above 65 US cents on Bernanke testimony

Wednesday 22nd July 2009

The New Zealand dollar held above 65 US cents after Federal Reserve chairman Ben Bernanke reiterated that low interest rates would remain in place for an extended period and US companies including Caterpillar and Merck posted better-than-expected earnings.

In testimony before the House of Representatives Financial Services Committee, Bernanke acknowledged signs of stabilisation in the world’s largest economy and said he was prepared to halt stimulatory measures should inflation stir, but reiterated near-zero rates “will be appropriate for an extended period.”

Caterpillar jumped 7.7% and Merck climbed 6% after reporting their results, lifting the Dow Jones Industrial Average by 0.8% and helping stoke optimism the recession may be abating.

Bernanke “reiterated his message with unemployment rates still to rise, interest rates will remain low for an extended period, and reminded the markets of the challenge out there,” said Philip Borkin, economist at ANZ National Bank.

US corporate “earnings have surpassed expectations, and we’ll need to see some negative news” to erode the support for higher-yields and bring the New Zealand dollar down, he said.

The kiwi advanced to 65.56 US cents from 65.53 cents yesterday, and was little changed at 61.33 on the trade-weighted index, or TWI, a measure of the currency versus the Australian dollar, greenback, yen, euro and pound, from 61.30. It slipped to 61.50 yen from 61.71 yen yesterday, and dropped to 80.27 Australian cents from 80.41 cents. It increased to 46.14 euro cents from 46.04 cents.

Borkin said the currency may trade between 64.85 US cents and 66.50 cents today as it continues to track buoyant equity markets, which will continue to drag on the economy, which needs a lower dollar to support exports and lift it out of its deepest recession in more than 30 years.

“The last thing New Zealand needs is a currency decoupled from domestic events,” but that’s what we’ve got, Borkin said. Bernanke isn’t expected to stray too far from today’s comments when he appears before the Senate committee on Wednesday in Washington DC, Borkin said.

Australian consumer price index data out today is unlikely to have much impact on foreign exchange markets, with most investors not worried about near-term inflation.

Finance Minister Bill English is due to give a speech on the economy tomorrow, and traders will be looking for any mention about the currency after Trade Minister Tim Groser told CNBC the kiwi’s strength was a “point of concern,” but ruled out any intervention to drag the currency lower.

“We just haven't got the money,” Groser said in his interview. “The idea of little tiny New Zealand using its peashooter to take on world currency markets is a joke – we made a decision 25 years ago to have a floating exchange rate, and we'll stick with that.”

Businesswire.co.nz

Comments from our readers

No comments yet