Dollar gains on rising risk appetite

By Paul McBeth

Wednesday 25th February 2009

The New Zealand dollar rose after US Federal Reserve Chair Ben Bernanke hosed down concern about nationalisation of banks, helping stocks rally on Wall Street and stoking investor appetite for high yielding, or riskier, assets.

The nationalisation of the US banking system will be a last resort, and only if the economy continues to deteriorate, creating more losses for the financial sector, Bernanke told the Senate Banking Committee.

The Standard & Poor's 500 rose 3.4% after tumbling to a 12-year-low as bargain hunters gambling that the market had bottomed out snapped up cheap stocks after the chairman's statement, even though a slew of weak data, including a collapse in consumer confidence, showed a bleak situation.

The rising appetite for risk supported high-yielding assets like the kiwi, which could push higher over the next few trading sessions.

"In the short-term, the kiwi is looking strong," said Imre Speizer, currency strategist at Westpac Banking Corp. "It needs a very important negative event" to break from its current ranges, he said.

The kiwi rose to 51.53 US cents from 51.22 cents yesterday, and jumped to 49.88 yen from 48.78 yen. It fell to 40.02 euro cents from 40.08 cents yesterday, and was unchanged on 79.08 Australian cents.

Speizer said the kiwi may trade between 51.50 US cents and 52 cents today as ongoing risk appetite helps support the currency.

He predicts the Reserve Bank will announce a fall in its expectations for inflation to 2.4% from 2.7% in the two-year reading when it releases its forecast today. Unless the figures are well below expectations, Speizer doubts they will impact on support the kiwi.

Concerns have re-emerged over developing nations, with rating service Standard & Poor's downgrading Latvia's sovereign debt to BBB-, and putting Lithuania and Estonia on negative watch.

The problems in Europe and Japan are lending support to the US dollar as the major safe haven currency, and this will likely resume when investors return to more defensive positions.

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