NZ dollar gains as Abu Dhabi pumps US$10 bln into shaky Dubai World

Tuesday 15th December 2009

The New Zealand dollar gained as investors’ appetite for higher-yielding, riskier assets climbed amid news the government of Abu Dhabi would pump US$10 billion into Dubai World to help it avoid default on debt repayments.

The capital of the oil-rich United Arab Emirates agreed to rescue neighbouring state-owned investment company Dubai World to the tune of US$10 billion, US$4.1 billion of which has been used to repay the Nakheel Islamic bond, with the remainder to finance the company until April next year.

U.S. bank Citigroup announced it would pay back US$17 billion of the Troubled Asset Relief Program after it raised US$20 billion, while Exxon Mobil said it will buy XTO Energy for US$31 billion.

The prospect of some merger and acquisition activity further supported riskier investing, helping push stocks on Wall Street and commodity prices higher.

The Dubai World bailout “set the scene for a recovery in risk appetites that benefited commodity currencies like the kiwi and Aussie, and equity markets opened in pretty good heart,” said Mike Jones, strategist at Bank of New Zealand. “Firming risk appetite and modest gains across equities markets saw the USD erase some of its recent gains as ‘safe-haven’ positions were pared back.”

The kiwi climbed to 72.72 U.S. cents from 72.43 cents yesterday and gained to 65.34 on the trade-weighted index, or TWI, a measure of the currency against a basket of five partners, from 65.16. It rose to 64.48 yen from 64.22 yen yesterday and dropped to 79.36 Australian cents from 79.54 cents. It increased to 49.65 euro cents from 49.39 cents yesterday and was little changed at 44.61 pence from 44.64 pence.

Jones said the currency may trade between 72 U.S. cents and 73 cents today, though he expects it to be well supported at 72.40 cents and predicts it may test the top-side of this range.

“There’s appetite from real money, leveraged and sovereign accounts, and it should be supported above 72 cents for the rest of the week,” Jones said.

Domestically, The Treasury will release its half-year economic and fiscal update today and is expected to revise its forecasts upwards. Still, tax revenue is still a concern, and investors will be watching to see if the government accounts are improving.

Prime Minister John Key said yesterday that the improving economic outlook only strengthened the case for regaining control of government spending, which was showing relentless growth in some areas.

Australia’s central bank releases its minutes from this month’s monetary policy meeting today, and traders will look for hints as to whether it will continue raising rates when it next meets in February.

The Reserve Bank of Australia became the first G-20 nation to tighten monetary policy in October, and it has hiked rates three times in the past three months.

Businesswire.co.nz

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