Dollar edges up as US considers extending bailout

By Paul McBeth

Tuesday 21st October 2008

The New Zealand dollar rose against the currencies of the nation�s major trading partners after US stocks rallied on the prospects of an extended US bailout for financial markets.

US Federal Reserve Chairman Ben Bernanke gave his support to a proposal from Speaker of the House Nancy Pelosi that would improve credit access for consumers, home buyers and businesses. US stocks rose following Bernanke�s endorsement of the US$150 billion plan, encouraging investors to look at higher yielding investments such as the kiwi.

�Equity markets appear to be settling down,� said Tim Kelleher, corporate risk manager at ASB Bank. �This is positive for the kiwi and Australian dollars.�

The kiwi rose to 62.47 US cents from 62.03 cents, and 63.52 yen from 63.3. It climbed to 88.96 Australian cents from 88.36 cents, and jumped to 46.87 euro cents from 45.99. Kelleher said the dollar will likely trade between 61.5 US cents and 63 cents today.

The US dollar gained against the euro for the fourth day in a row following Bernanke�s statement. Kelleher said there are expectations that the European Central Bank will cut its benchmark rate further. The Dutch government gave ING Groep a 10 billion euro infusion and France is putting 10.5 billion euro into its six biggest banks to encourage them to increase lending.

Concern about weaker global growth prompted the Reserve Bank of India to cut its benchmark rate by 100 basis points to 8%.

In New Zealand, third quarter consumer price figures are expected to show the highest level of inflation for 18 years, with predictions the rate peaked at 5.1% in the latest three months. That about matches the central bank�s estimate and probably won�t deter Governor Alan Bollard from slashing interest rates this week.

Economists are expecting the New Zealand�s central bank to cut rates by 100 basis points and have locked in their pricing accordingly, Kelleher said. �We�re just waiting until Thursday,� he said.

Bank of New Zealand expects the central bank rate cut will weaken the New Zealand dollar against the Australian dollar. Its �gains over recent weeks have been a result of market positioning and have not fairly reflected the fundamental differences between the NZ and Australian economies,� said Danica Hampton, currency strategist at the BNZ.

BuisnessWire.co.nz

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