Dollar climbs back over 67 US cents

Thursday 13th August 2009

The New Zealand dollar climbed back over 67 US cents after investors’ appetite for higher-yielding, or riskier, assets was stoked by a brighter statement from the Federal Open Market Committee, which held interest rates unchanged and kept its bond purchase target in place.

The FOMC kept its target band for interest rates between zero and 0.25%. The Fed retained its current bond purchase programme at US$300 billion, with the end date pushed out to October.

The Fed said the pace of economic contraction was slowing, boosting optimism the global economy is on the road to recovery.

The kiwi climbed 1.2% against the greenback as the statement burst negative sentiment that dragged down Asian equity markets yesterday.

The Fed’s statement that “things are looking more upbeat is consistent with the global recovery story and we might see gains in growth-sensitive currencies,” said Danica Hampton, currency strategist at Bank of New Zealand.

“We’re going through patches of optimism and negativity, with plenty of volatility around,” she said.

The kiwi jumped to 67.14 US cents from 66.32 cents yesterday, and advanced to 62.77 on the trade-weighted index, or TWI, a measure of the currency versus the yen, greenback, Australian dollar, euro and pound, from 62.20. It climbed to 64.48 yen from 63.44 yen yesterday and increased to 47.29 euro cents from 46.92 cents.

The kiwi was little changed at 80.60 Australian cents from 80.29 cents yesterday.

Hampton said the currency may trade between 66.60 US cents and 67.60 cents today and will probably consolidate on yesterday’s gains.

While she sees the kiwi dollar grinding a few cents higher in the next couple of weeks, she expects it will come tumbling down when investor sentiment turns.

Asian equity markets tumbled yesterday after reports questioned the strength of the Chinese recovery. Hong Kong’s Hang Seng index declined 3%.

The Business New Zealand-BNZ performance of manufacturing index is expected to show further recovery in the sector, ahead of tomorrow’s retail trade data for the second quarter.

Businesswire.co.nz

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