NZ dollar holds above 62 US cents after S&P eases credit fears

Friday 29th May 2009

The New Zealand dollar held above 62 U.S. cents after Standard & Poor’s eased concerns about the state of the country’s economy by lifting its outlook for the country’s credit rating.

The kiwi jumped as much as 2% after the ratings agency endorsed the government’s budget by upgrading the outlook for New Zealand’s AA+ foreign currency rating to ‘stable’ from ‘negative.’ Finance Minister Bill English’s first budget scrapped tax cuts scheduled for the next two years, suspended contributions to the New Zealand Superannuation Fund, and capped new spending to prevent debt from spiraling out of control. Moody’s Investor Services also reaffirmed New Zealand’s Aaa credit rating with stable outlook.

“S&P like it and that’s the main thing,” said Tim Kelleher, vice president of institutional markets and banking at Commonwealth Bank of Australia. “The kiwi has already outperformed” since the S&P downgrade in January, but is looking a little overstretched, he said.

The New Zealand dollar dipped to 62.32 U.S. cents from 62.45 cents yesterday, and slipped to 60.35 yen from 60.42 yen. It dropped to 79.37 Australian cents from 79.66 cents yesterday, and declined to 44.68 euro cents from 44.97 cents.

Kelleher said the currency may trade between 62 U.S. cents and 62.70 cents today, but should come off in the next couple of days, with equities now appearing more expensive.

The kiwi climbed over 60 yen to its highest level in more than six months as Japanese investment trusts launched new funds in Australia, Brazil and South Africa, Kelleher said. The Toshin Funds’ investments had seen the yen come down across most currencies. The yen was little changed at 96.83 per U.S. dollar from 96.85 yesterday.

Japanese investors bought 641.1 billion yen more overseas bonds and notes than they sold in the week ended May 23, according to the Ministry of Finance.

The U.S. had another relatively successful sale of Treasuries, with US$101 billion of two-, five-, and seven-year notes.

Danica Hampton, currency strategist at Bank of New Zealand, said the “fears about souring offshore demand for U.S. dollar denominated assets are probably overblown.”

Investors will be watching the Chicago Performance of Manufacturing Index, which is expected to continue to improve, according to a Reuters survey. Preliminary U.S. first-quarter gross domestic product data is also out today, and will probably show the world’s largest economy shrank 5.5%.

Businesswire.co.nz

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