Dollar at month-high versus Ausi and US

By Paul McBeth

Tuesday 17th March 2009

The New Zealand dollar reached one-month highs against the US and Australian dollars as ongoing strength in equity markets stoked demand for high-yielding, or riskier, assets.

Global stocks continued to rally as Barclays Plc, the UK's third-largest lender, joined the group of banks including Citigroup Inc. and Bank of America Corp. saying 2009 has started well, boosting confidence in the prospect of a recovery in the financial sector. US Federal Reserve Chairman Ben Bernanke said in a TV interview that the risk of depression had been "averted" and that patience in the Obama Administration's plan to stabilise the economy is required. Britain's FTSE 100 index rose 2.9% while Germany's DAX 30 index increased 2.3%.

"The New Zealand dollar benefitted from the recovery in global equities and risk appetite," said Danica Hampton, currency strategist at Bank of New Zealand. "Investors trimmed their safe-haven positions" and the kiwi was "one of the strongest performing currencies over the past 24 hours," she said.
The kiwi rose to 53.01 US cents from 52.80 cents yesterday, and jumped to 80.21 Australian cents from 79.89 cents. It increased to 52.11 yen from 51.80 yen yesterday, and gained to 40.84 euro cents from 40.67 cents.

Hampton said the currency may trade between 53.50 US cents and 52.30 cents today, and will probably continue in its current range, taking its cues from equity markets. The kiwi dollar may reach a trough in the first half of this year "as the huge stabilisation efforts" begin lifting the global economy out of recession, she said.

The New Zealand dollar broke 80 Australian cents for the first time since February 11. "People were overly bearish" when comparing New Zealand and Australian economies, and the kiwi's strength shows the Reserve Bank of Australia may have further to go than its New Zealand counterpart, Hampton said.

The Reserve Bank of New Zealand cut the official cash rate 50 basis points to a record low 3%, slashing 5.25 percentage points since embarking on its steepest easing policy in the ten-year history of the rate eight months ago.

New Zealand weak manufacturing data for the last three months of 2008 released yesterday by the government, showed sales volumes dropped 5.4% from the previous quarter, prompting the BNZ to revise its forecast for fourth-quarter gross domestic product down to a 1.1% contraction, from 0.6%. The central bank predicts the economy shrank 0.8% for the period in its forecast released last week.

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