Dollar pares losses as Wall St gains

By Paul McBeth

Thursday 2nd April 2009

The New Zealand dollar pared yesterday's loss after US stocks gained on better-than-expected data, stoking investor appetite for higher-yielding, or riskier, assets.

The Dow Jones Industrial Average rose 2% as pending home sales in the US unexpectedly increased 2.1% month-on-month, overshadowing concerns General Motors Corp. will be forced to file for bankruptcy.

Investors returned to higher-yielding assets such as the kiwi dollar, which tumbled yesterday when Reserve Bank Governor Alan Bollard called long-term wholesale rates "out of line" with expectations, jawboning swap rates and the currency lower.

"US equity markets were back up, and risk appetite is still pretty solid," said Philip Borkin, economist at ANZ National Bank. "Bollard targeted swap rates, but I'm sure he would have been happy to see the currency fall."

The kiwi jumped to 56.72 US cents from 55.67 cents yesterday, and rose to 55.85 yen from 55.07 yen. It increased to 81.13 Australian cents from 80.65 cents yesterday, and gained to 42.82 euro cents from 42.17 cents.

The price of milk powder rose 3.6% to US$2,235 per metric ton in Fonterra Cooperative Group's online auction, the second straight gain on the system. Prices had slumped 58% since the introduction of the auctions in July last year before the first gain in March.

The currency needs to be low if exporters are to take advantage of higher prices. "If the dollar goes up, we're not able to benefit" from Fonterra's gain, Borkin said. The ANZ National Bank commodity price index out later today may show prices for raw materials produced in New Zealand have stabilised following the Fonterra sale.

Investors will be monitoring the G-20 summit in London, as the leaders attending the meeting hold a press conference tomorrow to announce their decisions. Additional funding for the International Monetary Fund and tighter regulation of the global financial system is expected. Prior to the meeting, there was speculation the US dollar's position as the world's reserve currency would be discussed, but Borkin said "there's been some comment that they won't be discussing the currency".

When the European Central Bank meets tonight, it is widely expected to cut its benchmark rate by 50 basis points to 1%, with currency traders looking for any indications that President Jean-Claude Trichet is moving towards the policy measures embraced by the Federal Reserve and Bank of England.

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