Dollar advances before GDP report, which may show slump abating

Friday 26th June 2009

The New Zealand dollar gained ahead of GDP figures that are expected to show the recession abated in the first quarter, stoking expectations the economy will return to growth before the end of the year.

Gross domestic product contracted 0.7% in the first three months of the year, down from a 0.9% contraction in the fourth quarter of 2008, according to a Reuters survey. Reserve Bank Governor Alan Bollard is forecasting the economy will emerge from its worst recession in 30 years in the fourth quarter of this year. The OECD made the same prediction in a report yesterday. The US dollar and yen weakened as the rebound in stocks on Wall Street stoked demand for higher-yielding assets.

“The focus for today is GDP, and it will be interesting to see how markets play it,” said Philip Borkin, economist at ANZ National Bank. “We may see a near-term bounce” if it exceeds expectations, he said. “It’s hard to see it going lower unless we see a real shocker.”

The kiwi dollar climbed to 64.63 US cents from 63.80 cents last yesterday and strengthened to 61.85 yen from 61.53. It rose to 80.37 Australian cents from 79.96 cents and rose to 46.10 against the euro from 45.74. The trade-weighted index gained to 61.01 from 60.52.

The GDP report comes after government figures yesterday showed the nation’s current account deficit shrank to the smallest since 2004 in the first quarter as the worst recession in 30 years crimped demand for imports and global oil prices declined. While the contraction was welcomed, analysts said the fact that it was driven by weak imports underlines the weakness of the local economy. Exports were stronger than expected.

“The current account deficit suggests an upside risk” to the GDP, Borkin said. The range for the kiwi today may be 64 US cents to 65.16 cents.

Investors are awaiting forward-looking indicators in the next two weeks including the National Bank Business Outlook survey and the New Zealand Institute of Economic Research’s QSBO.

US Treasuries rallied yesterday after the government completed its third auction of debt this week, drawing more demand than expected, and as figures showed an increase in Americans seeking for unemployment benefits.

Indirect bidders, which include foreign central banks, scooped up 67.2% of the US$27 billion of seven-year notes on offer, more than double the amount they bought in last month’s sale. The latest auction drew a lower-than-expected yield of 3.329%. It was the largest sale of notes of that maturity since regular sales began in 1981.

Businesswire.co.nz

Comments from our readers

No comments yet