Dollar holds against greenback as equities edge higher

Tuesday 28th July 2009

The New Zealand dollar held at around 65.50 US cents for a second session as a jump in home sales helped underpin Wall Street and kept the mood of more risk appetite intact as investors await Reserve Bank Governor Alan Bollard’s statement on monetary policy.

US benchmark stock indexes clawed back ground to end in positive territory, with the Dow Jones Industrial Average holding above 9,000, after Commerce Department figures showed purchases of new homes in the US jumped 11%.

That helped make up for weaker-than-expected earnings from health insurer Aetna Inc., which also lowered its full-year forecast a second time, and RadioShack posted sales that missed estimates. The Dow edged up 0.2% to 9108.51. Data in New Zealand this week includes merchandise trade today, which may show imports fell faster than exports, improving the current account position.

The kiwi “really did follow movements in US equities – it’s still choppy,” said Philip Borkin, economist at ANZ National Bank. “People are waiting for the RBNZ.”

The New Zealand dollar bought 65.62 US cents from 65.57 cents yesterday. It slipped to 79.75 Australian cents from 80.02 cents and weakened to 62.48 yen from 62.17. The kiwi was at 46.10 euro from 46.08.

The annual trade deficit narrowed to $2.56 billion in June from $3.04 billion the previous month, according to the consensus of estimates compiled by Reuters.

Also this week are building consents and National Bank’s Business outlook survey, which may both underpin the prospects of the economic slump become ‘less worse.’

Bollard is expected to keep the official cash rate at a record low 2.5% on Thursday and investors will be studying any comments he makes on the outlook for signs that interest rates could rise sooner than the ‘late-2010’ horizon he flagged at his last monetary policy statement.

Fears have abated about the impact of $4.7 billion worth of uridashi and eurokiwi bonds that matured this month, with little sign yet that the expiries have prompted an exodus of funds from the kiwi dollar.

“In some part it seems these investments are either being rolled over or any supply is meeting fresh demand from new investors,” Danica Hampton, currency strategist at Bank of New Zealand, said in a report.

She said there’s a risk that the current rally in equities runs out of steam, with better-than-expected earnings pushing some stock benchmarks above key technical levels.

“We're far from convinced this mood can be sustained given the likelihood that the inventory rebound that is aiding earnings will be limited and the fact that earnings are being supported by cost cutting,” Hampton said.

Investors are awaiting the outcome of auctions of a record US$115 billion of US Treasury bonds and US$90 billion of bills this week for signs that overseas central banks have the same appetite for the debt as they did in last month’s auction.

Businesswire.co.nz

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