Dollar gains on optimism global slump is abating

Wednesday 6th May 2009

The New Zealand dollar rose against most major currencies amid signs the global economic slump may be abating, giving investors more appetite for higher-yielding currencies of commodity producing nations.

Federal Reserve Chairman Ben Bernanke said in testimony to the congressional Joint Economic Committee that the US housing slump may be near its bottom, marred only by the risk of another credit shock.

The US Institute for Supply Management’s index of non-manufacturing businesses rose to a seven-month high 43.7, edging closer to the 50 level which is the cut off between contraction and expansion. Commodity producers in Europe rose on signs of a pick-up in manufacturing in China, with Rio Tinto up 2.8% and Vedanta Resources climbing 12%.

The kiwi has risen “on the back of global sentiment” and “optimism the green shoots will turn into more of a recovery,” said Philip Borkin, economist at ANZ National Bank.

The New Zealand dollar rose to 57.96 US from 57.51 cents late yesterday. Against the Australian dollar it climbed to 78.16 cents from 77.76 cents. The kiwi strengthened to 57.31 yen from 56.91 yen and rose to 43.52 euro cents from 42.90.

In London, the FTSE 100 jumped 2.2% to 4336.94. Resource stocks climbed when the market re-opened after a holiday, on reaction to figures showing manufacturing in China rose for the first time in nine months. Rio Tinto jumped 2.8% and Vedanta Resources jumped 12%. Lloyds Banking Group gained 10%.

New Zealand commodity prices posted their strongest monthly gains in almost two years, led by increases for aluminium and lamb, according to the ANZ Commodity Price Index, released yesterday. The index rose 2.5% in April, the second straight monthly gain.

Consecutive rises were recorded in the prices of wool, beef, sheep meat and dairy. Aluminium rose 6.6% and lamb gained 6.4%. Beef prices rose 3.2%, venison 1.6%, dairy 3.1%, and skin and wool rose 2.3% and 1.3% respectively.

The kiwi dollar rose against all its major trading partners last month, up 5.5% on a trade-weighted basis and 7.4% against the US dollar. Because the strength of the kiwi dollar was greater than the rise in world commodity prices, the NZ dollar index dropped 2.8%.

The ANZ commodity price index is showing world prices stabilising, but “the kiwi at these heights is not doing us any favours at the moment,” Borkin said.

Traders will be awaiting the outcome of the European Central Bank meeting tonight and the US Treasury’s stress test results are due for release.

Businesswire.co.nz

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