NZ dollar edges higher amid more upbeat US, European data; risk appetite climbs

Tuesday 24th November 2009

The New Zealand dollar edged higher after figures showed U.S. home sales and European manufacturing picked up, boosting investors’ appetite for higher-yielding, or riskier, assets.

American existing home sales surged 10.1% last month to an annual pace of 6.1 million, a 2 ½-year high, according to the National Association of Realtors, while data showed manufacturing is continuing to pick up in the Eurozone. Stocks on Wall Street and in Europe pared losses as investors’ regained confidence in the global recovery. St Louis Federal Reserve President James Bullard, who will gain voting rights on the Federal Open Market Committee next year, said the Fed should keep its mortgage-related asset purchasing programme in place beyond the scheduled end-date in 2010. That stoked optimism the central bank may keep its stimulus measures in place until the economic recovery takes hold.

“The backdrop of rising equities and recovering risk appetite encouraged investors to ditch ‘safe-haven’ currencies like USD and JPY in favour of growth sensitive currencies like NZD,” said Danica Hampton, currency strategist at Bank of New Zealand. “Upbeat global data, including solid Eurozone PMIs, strong Canadian retail sales and much stronger-than-expected U.S. existing home sales, has helped ease some of the concerns about the global outlook.”

The kiwi rose to 73.30 U.S. cents from 73.11 cents yesterday and increased to 65.30 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.12. It increased to 79.33 Australian cents from 79.24 cents yesterday and rose to 65.24 yen from 65.08 yen. The kiwi was little changed at 44.12 pence from 44.11 pence yesterday and advanced to 48.96 euro cents from 48.84 cents.

Philip Borkin, economist at ANZ National Bank, said the currency may trade between 73.05 U.S. cents and 73.85 cents today, and will probably take its cues from Asian equity markets.

Yesterday’s ANZ Roy Morgan consumer confidence survey, which found people are still downbeat about the current state of the economy while being optimistic about the future, indicates it may be a tough period for retailers going into the Christmas shopping period, he said.

The kiwi dollar, which has surged more than 48% from its sub-50 U.S. cents low in March, has helped retailers boost their margins as the cost of imported wholesale goods declined.

“The Christmas shopping period will be reasonably challenging and retailers will have to be more aggressive in their pricing,” he said. “The labour market’s still pretty weak and people are still deleveraging and are being very cautious.”

Currency markets are expected to experience increasing volatility heading into the end of the week, when U.S. markets close for the Thanksgiving holiday and fund managers square up their positions as they prepare for month-end on Monday.

Offshore data including U.S. consumer confidence, house prices and the FOMC’s minutes, along with the German IFO index of business confidence and U.K. GDP revisions will also be closely watched by currency traders.

Businesswire.co.nz

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