NZ dollar extends gains on growing risk appetite

By Paul McBeth

Tuesday 10th February 2009

The New Zealand dollar extended its gains for a second day to the highest in three weeks as risk appetite continued to grow amid expectations the fiscal stimulus package in the U.S. will help offset the declining global economy.

U.S. Treasury Secretary Timothy Geithner delayed the announcement of the Obama Administration's rescue package, and is seeking to draw investors into the programme to help reduce levels of toxic debt on banks' balance sheets. The prospect of the stimulus shoring up the global economic slump encouraged currency traders to eschew safe haven currencies for higher-yielding, or riskier, assets.

Australian and New Zealand benchmark rates are still relatively high, and more attractive, than other countries with top sovereign ratings at Moody's Financial Services, giving support to their currencies when there's a rising risk appetite.

"Investors seem to be focusing on the positive impact the new measures should have on the beleaguered financial system and the outlook for global growth," said Danica Hampton, currency strategist at Bank of New Zealand. "The kiwi outperformed everything last night" as investors sought higher yields, she said.

The New Zealand dollar jumped to 54.09 U.S. cents from 52.89 cents yesterday, and rose to 49.52 yen from 48.33 yen. It increased to 41.51 euro cents from 41.01 cents yesterday, and was up to 79.50 Australian cents from 79.08 cents.

Hampton said the currency may trade between 53 U.S. cents and 54.50 cents today, and is likely to push to 55.50 cents this week. New Zealand's economic situation is still ugly, and "this is just a small respite" which will probably last for a couple of days, she said.

New Zealand's corporate earnings season begins this week, with Fletcher Building Ltd. posting its half-year result on Thursday, and Telecom Corp.'s second quarter earnings out on Friday. The prolonged domestic recession will probably show weaker profits, indicating a deteriorating economic situation in New Zealand.

Retail sales for December will be released on Friday, and are predicted to show a poor result. ANZ National Bank forecasts a fall in core spending of 0.7%, with quarterly volumes likely to have dropped 0.5%.

(Businesswire.co.nz)

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