Dollar gains as G-20 pledges US$1.1 trillion

By Paul McBeth

Friday 3rd April 2009

The New Zealand dollar gained to its highest level in almost three months as the Group of 20 policy makers meeting in London pledged US$1.1 trillion in emergency aid to help lift the sagging world economy out of recession.

The G-20 has tripled resources for the International Monetary Fund to US$750 billion and will spend at least US$250 billion over the next two years to ease trade finance, it said in its communiqué today.

It will also set up a new Financial Stability Board to enforce stricter regulations on hedge funds, executive pay, credit-rating firms and risk-taking by banks. The statement boosted appetite for higher-yielding, or riskier assets, as the Dow Jones Industrial Average gained 2.8%.

The G-20 statement "was way more than what the market expected," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank. The kiwi's "back to January levels" before Standard & Poor's put New Zealand's sovereign credit rating on negative watch, he said.

The New Zealand dollar jumped to 57.84 US cents from 57.12 cents yesterday and gained to 57.54 yen from 56.68 yen. It fell to 80.80 Australian cents from 80.92 cents yesterday, and dropped to 42.97 euro cents from 43.01 cents.

Kelleher said the currency may trade between 57.50 US cents and 58.20 cents today. "It has a big level to get through" and tonight's US non-farm payroll numbers will probably influence where it moves to next, he said.

The G-20 also pledged to "refrain from competitive devaluation of our currencies". Meanwhile, the Swiss National Bank reaffirmed its intention to intervene in the currency market to prevent the Swiss franc from appreciating. The kiwi rose to 0.656 francs from 0.6552 francs yesterday.

The kiwi gained even after Finance Minister Bill English said the Reserve Bank would likely cut the official cash rate because rising interest rates and the strong dollar "make it a bit more difficult for New Zealand to get through the bottom of this recession." The central bank slashed the OCR to 3% last month having wiped 5.25 percentage points since embarking on the steepest series of rate cuts in July.

In Europe, the central bank cut its benchmark rate 25 basis points to 1.25%, below the expected 0.5 percentage points, with President Jean-Claude Trichet deferring a decision on quantitative easing until its next meeting.

Comments from our readers

No comments yet