Dollar may grind higher on upbeat data

Monday 27th July 2009

The New Zealand dollar, little changed from its close on Friday in New York, may grind higher on the prospect of further upside surprises in US earnings, underpinning equity markets, and as domestic data hints that recession is abating.

Reserve Bank Governor Alan Bollard releases his review of monetary policy on Thursday and may warn that a high kiwi dollar is holding back an export-led recovery and rebalancing of the economy.

Consensus is, though, that he’s done cutting rates for now and will keep the official cash rate at a record-low 2.5%.

Among companies on the Standard & Poor’s 500 that have posted second-quarter earnings, 75% have beaten analyst estimates, according to Bloomberg and the Dow Jones Industrial Average last week topped 9,000 for the first time since January.

That has helped stoke risk appetite and demand for higher-yielding currencies such as the kiwi. Weighing on the currency, some $891.5 million of uridashis are set to mature today.

“The kiwi will continue grinding higher on the crosses,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. The currency “is very much a bellwether of firmer equities.”

The kiwi dollar bought 65.51 US cents, from 65.57 cents in late New York trading on Friday. The currency bought 80.13 Australian cents from 80.17 cents and traded at 62.16 yen from 62.13. Against the euro it was at 46.15 euro cents from 46.25. New Zealand’s NZX 50 Index climbed 0.9% to 2987, a nine-month high.

The New Zealand earnings season kicks off in earnest next week. Before Thursday’s MPS, traders are awaiting the National Bank Business Outlook survey, merchandise trade and building consents.

They are also awaiting the outcome of auctions of a record US$115 billion of US Treasury bonds and US$90 billion of bills for signs that overseas central banks have the same appetite fore the debt as they did in last month’s auction. Since then bond yields have climbed.

“The appetite has been there (for Treasuries) because the alternatives have not been very attractive,” said Robin Clements, senior economist at UBS New Zealand.

He said risk appetite “has been coming and going and that gives you some wobbles in the currency – but generally not enough to be damaging,” driving the kiwi lower.

Businesswire.co.nz

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