NZ dollar climbs ½ a US cent

Tuesday 3rd April 2012

The New Zealand dollar gained half a cent against the greenback as better-than-expected manufacturing in the US and China underpinned optimism the world’s two largest economies are back on track.

The kiwi rose as high as 82.54 US cents in Northern Hemisphere trading and traded at 82.36 cents at 8am, up from 81.96 cents yesterday at 5pm. The trade weighted index increased to 73.19 from 72.98.

Investors’ appetite for higher-yielding assets was stoked after US manufacturing figures showed the sector expanded at a faster pace than forecast in March.

The Institute of Supply Management’s factory index rose to 53.4 from 52.4 a month earlier. Fifty is the dividing line between growth and contraction. Economists in a Bloomberg survey had predicted the gauge would climb to 53.

That followed on from official Chinese manufacturing figures, which showed industrial activity is still expanding after HSBC’s lead indicator raised fears it may be contracting.

“The data effectively gave the New Zealand dollar another growth signal,” said Alex Sinton, senior dealer at ANZ New Zealand. “What the market wanted was a back-up to the Chinese data.”

Still, figures showed Euro-zone manufacturing contracted for an eighth month in March, adding to fears for the 17-country block's first-quarter growth. Unemployment in the region rose to 10.8 percent in February, the highest since June 1997, according to Eurostat. That was in line with expectations of economists polled by Reuters.

In Australia, New Zealand’s biggest trading partner, the Reserve Bank will review its target cash rate this afternoon. Governor Glenn Stevens held the cash rate at 4.25 percent at the bank’s March meeting while warning that any material deterioration in the Australian economy would give it scope to cut rates.

The RBA is expected to slash interest rates by 74 basis points over the next 12 months, according to the Overnight Index Swap curve, narrowing the gap with New Zealand’s record low official cash rate of 2.5 percent. New Zealand’s central bank is seen lifting the OCR by 24 basis points in the next 12 months.

“In our time zone the RBA is the big news and I think the New Zealand dollar is going to go up,” Sinton said. “There will be a lot of sellers in New Zealand dollars all the way up to 80 Australia cents.”

“If the RBA don’t cut rates the Australian dollar will look to move higher and take the New Zealand dollar higher with it,” he said.

New Zealand has no significant data set for release today.

The New Zealand dollar rose to 79 Australian cents from 78.79 cents yesterday. It increased to 61.79 euro cents from 61.40 cents and gained to 51.36 British pence from 51.24 pence. The kiwi fell to 67.54 yen from 68 yen yesterday.

BusinessDesk.co.nz

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