Dollar gains as S&P 500 hits nine-month high

Tuesday 4th August 2009

The New Zealand dollar hit a 10-month high as stocks on Wall Street pushed higher on renewed optimism the global economy is on the road to recovery, amid rising prices for raw materials and investor appetites for higher-yielding, or riskier, assets.

The Standard & Poor’s 500 Index rose above 1000 and the Nasdaq Composite Index climbed over 2000 for the first time in since November and October respectively, as data showed American manufacturing shrank less than expected.

China avoided a decline altogether, with the CLSA China Purchasing Managers’ Index climbing to a 12-month high 52.8, seasonally adjusted.

The prospect of rising economic activity stoked demand for higher-yields as investors turned their back on the safe haven of the greenback, with the Dollar Index, a measure of the currency versus a basket of six trading partners, sank 0.7% to 77.59, the lowest level since September.

“Better data helped the view that the global economy is closer to recovery, and boosted sentiment the forward momentum is coming through,” said Philip Borkin, economist at ANZ National Bank.

“There’s more upside risk, and in the near-term, but the higher we push, the sharper the correction.”

The kiwi climbed to 66.76 US cents from 66.63 cents yesterday, and slipped to 61.78 on the trade-weighted index, or TWI, a measure of the currency versus the greenback, Australian dollar, yen, euro and pound, from 61.86 yesterday.

It jumped to 63.59 yen from 63.25 yen yesterday, and slipped to 46.32 euro cents from 46.46 cents. It declined to 79.27 Australian cents from 79.36 cents yesterday.

Borkin said the currency may trade between 66.30 US cents and 68.15 cents today as investor appetites continue to be buoyed by signs the global recession may be passed its worst, and he wouldn’t be surprised if it pushes close to 70 cents in the coming weeks as sentiment continues to drag the greenback lower.

Still, the kiwi underperformed against the greenback compared to other commodity currencies including the Australian and Canadian dollars, and doesn’t appear to be as over-stretched as those currencies that are closely tied to hard commodities such oil and minerals, he said.

Soft commodities, such as dairy and wool, which New Zealand produces, haven’t recorded the same gains as their hard counterparts, and local exporters have struggled with the recent highs in the kiwi dollar, Borkin said.

The Reuters Jefferies CRB index, a measure of 19 raw materials gained 3.4% yesterday and surged close to 34% from its lows in February, while the ANZ National Bank Commodity Index, a measure of the price raw materials produced in New Zealand, rose 8% to June over a similar period.

The bank will release July’s data later today, and while Fonterra Cooperative Group’s latest online auction for milk powder will take place today in the US.

The release of Quarterly Employment Survey and the Labour Cost Index, with the Household Labour Force Survey due on Thursday, are expected to show a tightening labour market with unemployment rising to seven-year high 5.6% in the three months ended June 30, according to a Reuters survey.

The Reserve Bank of Australia will review its benchmark interest rate today, and is expected to keep rates on hold.

Businesswire.co.nz

Comments from our readers

No comments yet