Dollar pares gains on swine flu fears

Monday 27th April 2009

The New Zealand dollar pared its gains as markets digested the implications of possible cases of swine flu among Auckland school children who returned from a trip to Mexico.

Ten children tested positive for type-A flu, which may indicate exposure to the new strain of the disease, which killed 81 in Mexico. News reports of the New Zealand link sapped earlier gains in the currency that had been fueled by upbeat comments from the Group of Seven by finance chiefs that the global economy may stage a “weak” recovery this year.

Health Minister Tony Ryall put out a statement today titled “Ten Students Infected With Swine Flu.” It is likely they have been infected, the statement said.

The kiwi “is off half a cent on fears about swine flu,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “It hurts sentiment and it will hurt tourism.”

Tourism accounts for about 10% of New Zealand’s economy and is the largest source of foreign exchange.

Wall Street ended last week higher on better-than-expected corporate earnings, with the Dow Jones Industrial Average climbing 1.5%. Sentiment for the US dollar eased after a G-24 official said many countries were seeking an alternative to the greenback as the reserve currency. Kelleher said the swine flu outbreak may help stoke the Swiss franc against the dollar as Roche Holding of Switzerland is the manufacturer of Tamiflu. The franc was last at 1.1385 per dollar.

Optimism by finance chiefs at a Group of Seven nations meeting stoked investors’ appetite for high-yielding, or riskier, assets.

“The overall tone of the (G-7) communiqué was slightly less dire than February’s,” said Danica Hampton, currency strategist at Bank of New Zealand. “Equity markets had some strong gains, and this helped reduce safe-haven appeal.”

The kiwi rose to 56.78 U.S. cents from 56.56 cents last week. It was earlier at 57.15 US cents. The currency was little changed at 54.98 yen from 54.86 yen. It fell to 78.73 Australian cents from 78.99 cents last week, and was little changed at 42.97 euro cents from 42.76 cents.

Hampton said the currency may trade between 56.50 US cents and 57.50 cents today as global events continue to influence the kiwi. She predicts it will fall this week as heading towards the central bank’s official cash rate review on Thursday.

BNZ economists forecast Reserve Bank Governor Alan Bollard will cut the OCR 50 basis points to a record 2.5%, and expect the governor will indicate rates will remain low for an extended period, Hampton said.

Businesswire.co.nz

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