Dollar holds before current account

Tuesday 22nd September 2009

The New Zealand dollar held above 70 US cents before data that may show the current account gap is abating and the economy’s contraction is easing.

The current account deficit probably shrank to 7.2% of gross domestic product in the second quarter, from 8.5% in the first three months of the year, according to a Reuters survey.

The Westpac McDermott Miller Consumer Confidence Survey, out today, may help underpin optimism that the economy has pulled itself out of the first recession in a decade. GDP data tomorrow is expect to show the economy shrank 0.1% in the second quarter, which may herald the end of recession.

Investors worldwide are awaiting the outcome of the Federal Reserve’s policy meeting and comments out of the Group of 20 leaders summit this week to gauge the direction of the greenback, traders said.

“If the current account deficit is really bad, this could result in the kiwi coming down,” said Mike Jones, strategist at Bank of New Zealand. “People are very nervous about the G-20 meeting and that leaders will talk about winding down their stimulus measures.”

The kiwi rose to 70.65 US cents from 70.34 cents yesterday, and advanced to 64.62 on the trade-weighted index, or TWI, a measure of the currency versus a basket of five partners, from 64.38.

It climbed to 65.01 yen from 64.75 yen yesterday, and increased to 48.14 euro cents from 47.96 cents. It increased to 81.88 Australian cents from 81.58 cents yesterday.

Jones said the currency may trade between 70.20 US cents and 71 cents today, and will probably tread water as traders wait for New Zealand’s second quarter gross domestic product data tomorrow.

Among signs the domestic economy may gather momentum, government figures yesterday showed annual net migration reached a five-year high of 15,600 in August, which may help underpin demand for residential property.

House prices climbed 4.4% over the past four months due to an unusually low number of listings, according to the Reserve Bank of New Zealand, and the surge in the market has supported the economy returning to growth.

Businesswire.co.nz

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