Dollar cracks 75 US cents as rallying stocks help restore risk appetites

Tuesday 20th October 2009

The New Zealand dollar cracked 75 US cents and hit a new 15-month high as investors’ flocked to higher-yielding, or riskier, assets amid better-than-expected earnings results and stronger equity markets.

Gannett Co., America’s largest newspaper publisher, and manufacturer Eaton Corp. beat analysts’ forecasts, while Bank of America boosted its price target for heavy-machinery maker Caterpillar, which reports tomorrow.

The Dow Jones Industrial Average climbed 1% back over the psychologically important 10,000 mark as the earnings season continued to imply US corporates survived the financial crisis in reasonable shape. The Dollar Index, a measure of the currency against a basket of six trading partners, fell 0.1% to 75.37.

“The kiwi out-performed massively – there was a big auction block at 75 cents that got taken out,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “It looks like people are trying to pre-empt the Reserve Bank next week.”

The kiwi jumped to 75.28 US cents from 74.71 cents yesterday and advanced to 67.29 on the trade-weighted index, or TWI, a measure of the currency against the pound, euro, yen, greenback and Australian dollar, from 66.92. It climbed to 68.21 yen from 67.68 yen yesterday and increased to 50.38 euro cents from 50.04 cents. It was little change at 81.14 Australian cents from 81.09 cents yesterday.

New Zealand’s central bank will review the official cash rate next week.

Governor Alan Bollard isn’t expected to boost it from a record low 2.5%, the market will be looking for changes to the wording of his statement that rates “will remain at or below the current level” until late next year. Traders are betting Bollard will hike rates as early as January.

Kelleher said the currency may trade between 75 US cents and 75.50 cents today, with the key event today being the release of the Reserve Bank of Australia’s minutes from its previous meeting.

Australia became the first G-20 nation to begin hiking rates when the RBA boosted rates 25 basis points to 3.25% this month, the market is pricing in a 50 point increase next month.

Apple Inc., the maker of Macintosh computers and the iPod, will be closely watched when it posts its third-quarter results.

The company has soared 120% since January to US$189.84, and if it falls below expectations, it may dent investors’ appetite for higher yields, Kelleher said.

Federal Reserve chairman Ben Bernanke reiterated the need for an exit strategy in a speech at the San Francisco Fed, and said the world’s largest economy has to boost its saving rate “by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce fiscal deficits over time.”

Meanwhile, the New York Fed said it’s testing tools to drain reserves from the banking system. The central bank said the bond market experienced some volatility, but that there was no lasting effect.

Businesswire.co.nz

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