NZ dollar gains as US consumer confidence rebounds, Wall St up

Wednesday 27th May 2009

The New Zealand dollar gained after a rebound in U.S. consumer confidence lifted investor appetite for high-yielding, riskier assets, and U.S. stocks climbed.

The Conference Board’s consumer sentiment index rose to 54.9 this month from a revised 40.8 in April, exceeding the 42.6 estimate in a Bloomberg survey. Wall Street surged as the survey stoked optimism the world’s largest economy will lift out of recession, with the Dow Jones Industrial Average up 2.4%. Martin Feldstein, a member of President Barack Obama’s Economic Advisory Board, told Reuters a U.S. economic recovery could come next year, but one of the fundamentals was “for the dollar to come down,” but this would hinder Europe’s revival.

The consumer sentiment index’s “numbers were a lot stronger than expectations,” said Philip Borkin, economist at ANZ National Bank. “It’s still well below the 100 level where the number of optimists matches the number of pessimists, but well off its lows a few months back.”

The kiwi climbed to 62.56 U.S. cents from 61.23 cents yesterday, and advanced to 59.38 yen from 58.16 yen. It increased to 79.40 Australian cents from 79.06 cents yesterday, and gained to 44.71 euro cents from 44.06 cents.

Borkin said the currency may trade between 61.65 U.S. cents and 62.85 cents as it continues to be swept higher by strong risk appetites. He said with the sharp gains the currency’s made in a relatively short space of time, there was a risk it would “snap-back” violently, but it would take an outside catalyst for this to occur.

Investors will be watching the National Bank Business Survey out today, which is closely followed by the central bank as a gauge of the country’s economy.

“The confidence reading may well push higher, amid all the green shoots talk, but we suspect the indicators that matter – those related to activity and employment/investment intentions – will continue to look weak,” said Danica Hampton, currency strategist at Bank of New Zealand.

Fonterra Cooperative Group will also announce its payout to farmers today, and ANZ National Bank expect it will be around $5.20 per kilogram. Borkin said if the outlook for next season is grim, it could drag the kiwi down a little.

Tomorrow’s budget announcement will be the main driver of the currency this week, and is expected to show the government will avoid a credit rating downgrade by Standard & Poor’s, which put the nation’s AA+ foreign currency rating on negative watch in January.

Prime Minister John Key and Finance Minister Bill English have reiterated their commitment to preventing a ratings downgrade, which the Treasury estimated could cost the country as much as NZ$600 million.

Businesswire.co.nz

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