Dollar holds as Wall Street rebounds

Friday 31st July 2009

The New Zealand dollar held above 65 US cents as stocks on Wall Street clawed back yesterday’s losses on better-than-expected corporate earnings and a softening of US jobless claims stoked investors’ appetites for higher-yielding, or riskier, assets.

The Standard & Poor’s 500 index climbed 1.2% as second quarter earnings for MasterCard, Motorola and Tyco outperformed expectations and encouraged investors to seek out higher returns.

Claims for unemployment benefits in the US rose 25,000 to 584,000 in the week ended July 25, compared with more than 600,000 claims every week last month. The kiwi underperformed some of its high yielding peers after the Reserve Bank of New Zealand yesterday held the official cash rate at a record-low 2.5% and raised the prospect of further easing of monetary policy.

“The kiwi underperformed other risk currencies like the Australian dollar and sterling” which rallied on the back of the US earnings and employment data, said Imre Speizer, currency strategist at Westpac Banking Corp. “The kiwi/Australian cross went down markedly as a further reaction to the Reserve Bank statement.”

The kiwi was little changed at 65.07 US cents from 65.16 cents yesterday, and dropped to 61.02 on the trade-weighted index, or TWI, a measure of the currency against five trading partners, from 61.10.

It sank to 78.97 Australian cents from 79.20 cents yesterday, and gained to 62.13 yen from 61.93 yen. It slipped to 46.26 euro cents from 46.34 cents yesterday.

Speizer said the currency may trade between 64.80 US cents and 65.45 cents today. He expects it will “bounce around” after the close in New Zealand markets, as portfolio managers fix their foreign asset holdings for the end of the month in the London session.

The currency slumped 1.3% yesterday after central bank Governor Alan Bollard said he would “reassess policy settings” if the country’s economic recovery was put at risk.

He said the kiwi dollar “in particular” was holding back the prospect of sustainable future growth, and reiterated that interest rates would remain at or below the current level until late next year.

Danica Hampton, currency strategist at Bank of New Zealand, said the central bank “engineered about as good an outcome as could have been expected under the circumstances” with its statement.

“The market was clearly surprised by the dovishness of the central bank but they probably shouldn’t have been,” she said in a report. “While the RBNZ will look to dictate the absolute level of monetary tightness, they will continue to be at the mercy of other economic entities as to the mix of those conditions.”

Businesswire.co.nz

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