NZ dollar holds above 81 cents on early hopes of fiscal cliff progress

Monday 19th November 2012

The New Zealand dollar rose back above 81 US cents after US Treasury Secretary Timothy Geithner indicated a resolution to the so-called fiscal cliff could be achieved within weeks, which would end a threat to the world's biggest economy.

The New Zealand dollar traded at 81.17 US cents from 81.21 cents in late New York trading on Friday. The trade-weighted index held at 73.07.

Geithner told Bloomberg that White House talks between President Barack Obama and congressional leaders were "a good meeting, and the tone was very good. I think this is doable within several weeks."

If US political leaders can't compromise, the world's biggest economy could contract early in the New Year as consumers and businesses slam on their spending brakes at the same time as taxes rise and the government is forced to cut its programmes.

"A key contributor to Friday's optimism was US fiscal cliff discussions reportedly getting off to a good start," said Mike Jones, currency strategist at Bank of New Zealand. "While this is encouraging, we caution that there is plenty of water to go under the bridge yet."

Stocks on Wall Street ended last week higher, helping give more of a bid tone to growth-linked assets such as the kiwi dollar. Locally, the Producers Price Index for the third quarter is due out today, as is the Performance of Services Index. Traders are looking for signs the economy isn't falling off a cliff after weak retail sales and a surprise jump in the unemployment rate.

The kiwi dollar rose to 66.06 yen from 65.96 yen, having climbed last week on speculation Japan's opposition party could win elections next month and work harder to weaken the Japanese currency.

The New Zealand dollar traded at 78.48 Australian cents from 78.45 cents and bought 63.70 euro cents, from 63.74 cents. It traded at 51.09 British pence from 51.10 pence.

BusinessDesk.co.nz

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