Dollar gains as risk appetite returns on Wall St rally

Tuesday 19th May 2009

The New Zealand dollar gained as a drop in interbank lending costs, better-than-expected results from US retailer Lowe’s and a clear-cut outcome to India’s elections spurred a rebound in US equities and stoked investors’ appetite for higher-yielding, or riskier, assets.

The Standard & Poor’s gained 3% as Lowe’s posted larger-than-expected per-share earnings of 32 US cents per share in the first three months of the year. Financial stocks gained as the London interbank offered rate, or Libor, for three month loans in dollars fell 4 basis points to 78 in its biggest slide since March 19.

Helping fuel risk appetite was the conclusive victory of India’s incumbent United Progressive Alliance, which introduced free-market policies. India’s Sensitive Index advanced 17%.

“We saw a huge return in risk appetite after the convincing election in India that rubbed off into European equities,” said Khoon Goh, senior markets analyst at ANZ National Bank. “This flowed through to the U.S. markets with rather promising profit” from Lowe’s, he said.

The kiwi climbed to 59.53 US cents from 58.80 cents yesterday, and gained to 57.39 yen from 56.25 yen. It fell to 77.71 Australian cents from 77.80 cents yesterday, and rose to 43.94 euro cents from 43.64 cents.

Goh said the currency may trade between 58.80 US cents and 59.80 cents as risk appetites continue to keep it buoyant. He doubts the kiwi will press lower, but this week’s global data releases may give it a “reality check,” he said.

The Reserve Bank of Australia will put out the minutes from its last meeting this afternoon, and may give an indication as to whether its board is comfortable with its future policy, Goh said.

The Federal Open Market Committee unveils its minutes later this week, and could comment on how the Fed will address rising bond yields. Gross domestic product figures from Japan are expected to show a 4.2% quarter-on-quarter contraction.

“We’ll see whether appetite will continue with the key Q1 Japanese data tomorrow night NZ time and the central bank minutes” out this week, he said.

Helping underpin support for risk sensitive currencies like the kiwi and the Australian dollar was the announcement of Rabobank Nederland NV’s uridashi sale, said Danica Hampton, currency strategist at Bank of New Zealand.

The $419 million two-year issue will be offered from May 21 to 29.

Businesswire.co.nz

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