Dollar gains as rising stocks, commodities stoke optimism

Monday 4th May 2009

The New Zealand dollar gained as strength on Wall Street and higher prices for raw materials stoked investors’ appetite for higher-yielding, or riskier assets.

Wall Street closed higher on Friday, with the Dow Jones Industrial Average and Standard & Poor’s 500 index both climbing 0.5%, as US stocks reported their biggest gain in nine years. Crude oil and copper rose as consumer confidence in the US encouraged optimism the global economy is beginning to stabilise.

The Reuters Jeffries CRB Futures Price index, a broad measure of the price of raw materials, rose almost 3%. The pick up in stocks and commodities helped offset concern that New Zealand interest rates are set to stay low for an extended period. Central bank Governor Alan Bollard slashed the official cash rate to a record-low 2.5% last week, and said rates would remain “at or below the current level” until late-2010.

“The kiwi is caught between improving risk appetite and the fact that rates are set to stay low” until the end of next year, said Khoon Goh, senior markets economist at ANZ National Bank. “Signs of US economic stability are giving investors comfort and they’re pricing in a recovery for the second half of the year.”

The New Zealand dollar rose to 57.27 US cents from 57.09 cents last week, and climbed to 56.84 yen from 56.73 yen. It was little changed at 78.11 Australian cents from 78.03 cents last week, and increased to 43.14 euro cents from 43.07 cents.

Goh said the currency may trade between 56.82 U.S. cents and 57.37 cents today as investor optimism stokes appetite for commodity currencies like the Australian and New Zealand dollars. He expects the kiwi will fall this week when employment data is released showing increased joblessness.

The Household Labour Force Survey will probably show first-quarter unemployment rose to 5.4% from 4.6% the previous three months, according to ANZ National Bank economists. Joblessness surged to a six-year high last year as the recession encouraged companies to cut staff and hold off on hiring in a bid to reduce costs.

Businesswire.co.nz

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