Dollar gains ahead of stress-test details

Friday 24th April 2009

The New Zealand dollar gained as US policymakers prepare to unveil how they will assess the ability of America’s largest banks to cope with ongoing financial crises and finance ministers of the Group of 20 nations gather in Washington to discuss the global economic slump.

US Treasury Secretary Timothy Geithner will unveil the methodology for the stress tests of 19 banks in the US today, and may force banks that are judged to require capital to disclose how they will attract additional funds.

Finance ministers from the world’s largest industrial nations will meet in Washington this weekend to follow up on pledges made to lift the global economy out of recession.

Investors in the kiwi dollar are awaiting the central bank's review the official cash rate next week, with the market predicting Governor Alan Bollard will cut rates by either 25 basis points or 50 basis points.

“We’ll probably see analysts use the methodology to second-guess and predict the results” of the stress tests on May 4, said Philip Borkin, economist at ANZ National Bank.

“The big impact will be on risk and sentiment” which could see some volatility in the markets, he said.

The kiwi gained to 56.14 US cents from 55.94 cents yesterday, and dropped to 54.88 yen from 54.99 yen. It slipped to 78.46 Australian cents from 78.70 cents yesterday, and declined to 42.67 euro cents from 42.79 cents.

Borkin said the kiwi may trade between 55.50 US cents and 56.20 cents today as investors wait for the central bank to review the official cash rate next Thursday.

Due to the indecision by the market to price in a cut of either 25 or 50 basis points, there’s “likely to be a reaction” to either move, he said.

Meanwhile, sentiment in the Eurozone improved with a better-than-expected result by Credit Suisse Group, the biggest Swiss bank, which posted a US$1.7 billion first-quarter profit.

Stronger services and manufacturing data added to the perceived improvement in the regional economy.

The euro gained to US$1.3144 from US$1.3067 yesterday, propelled by Middle Eastern and Eastern European accounts, said Danica Hampton, currency strategist at Bank of New Zealand.

Businesswire.co.nz

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