Dollar gains amid speculation

By Paul McBeth

Thursday 26th March 2009

The New Zealand dollar gained ahead of today's current account data, which will likely show the imbalance between exports and imports peaked in the fourth quarter to its widest level in more than a decade.

Economists predict the current account deficit for the three months to December 31, which probably widened to $16.1 billion from $15.5 billion, will be its peak, with demand for imports waning, and the relatively weaker currency encouraging exports.

Fourth-quarter gross domestic product figures out tomorrow are predicted to show the economy contracted for its fourth consecutive month, shrinking 1.1% according to a Bloomberg survey.

"The current account has to improve with less import demand - in bad times deficits shrink," said Imre Speizer, currency strategist at Westpac Banking Corp. "Even if it has widened, this is the end of it."

The kiwi rose to 56.17 US cents from 55.76 cents yesterday, and increased to 54.64 yen from 54.50 yen. It climbed to 80.998 Australian cents from 80.29 cents, and fell to 41.40 euro cents from 41.48 cents.

Speizer said the currency may trade between 55.50 US cents and 57.50 cents today, with more pressure on the lower end of the range. He doubts the GDP and current account data will be the circuit breaker to move the kiwi out of its current range, and expects the Reserve Bank of Australia's meeting on April 7 to be the next major event for the trans-Tasman currencies. In the meantime, the currency will continue to follow US equity markets, he said.

Foreign exchange markets were extremely volatile last night as US Treasury Timothy Geithner was reported to have been open to the suggestion that the US dollar could be replaced as the world's effective reserve currency by International Monetary Fund's special drawing rights, units of accounting at the fund used for member countries' reserves.

Chinese central bank Governor Zhou Xiaochuan raised his concerns over the US dollar's position as a reserve currency earlier this week, putting forward the proposal for a "super-sovereign reserve currency" in a report posted on the bank's website. "There is no real viable currency to replace the US dollar with," Speizer said, saying Zhou's statement was "posturing" and China could choose to invest in a basket of currencies if it wished.

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