NZ dollar gains on commodities; may fall on weak data, OCR

by Paul McBeth

Monday 26th January 2009

The New Zealand dollar edged higher as commodities gained. The advance in the currency may peter out this week, with the central bank set to slash interest rates and more evidence expected of a deteriorating economic situation.

The Reuters/Jeffries CRB index, a broad measure of commodity prices, rose 3% as oil prices increased on speculation that reduced production will result in a declining stockpiles. The Reserve Bank of New Zealand will review the official cash rate on Thursday, with a Reuters survey of economists forecasting a 100 basis point cut to 4%. Fonterra Cooperative Group, the world's largest exporter of dairy products, is expected to announce a lower payout to farmers this week, pushing the kiwi down further.

"The main driver was a rally in commodities, which saw the kiwi dragged up," said Khoon Goh, senior markets economist at ANZ National Bank. A lower payout by Fonterra and "downward revision" to the OCR "will weigh on the currency," he said.
The New Zealand dollar rose to 52.95 U.S. cents from 52.39 cents on Friday, and was up to 46.99 yen from 46.23 yen. It fell to 80.73 Australian cents from 80.80 cents on Friday, and increased to 40.75 euro cents from 40.68 cents.

Goh said the dollar may trade between 52.50 U.S. cents and 53.50 cents today. A further decline would help lift export returns and reduce New Zealand's high current account deficit, he said.

The U.S. economy may have contracted at its fastest rate since 1982, with a Bloomberg News survey estimating a contraction of 5.5% in gross domestic product for the last quarter of 2008, following on from a 5% fall in the third quarter. The U.S. Commerce Department will announce the figures later this week.
The U.S. Federal Reserve will review its benchmark rate this week and is expected to retain its zero to 0.25% band, though it may issue a statement on whether it will start to purchase U.S. Treasuries.

(Businesswire.co.nz)

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