Dollar rises on healthier stocks but gains may be limited

Monday 19th January 2009

The New Zealand dollar gained against the US dollar and the yen after stocks rose on Wall Street on Friday, reducing the haven appeal of the currencies of the world's two biggest economies.

The Dow Jones Industrial Average climbed 0.8% on Friday as prices of metals and crude oil rebounded and the US government announced a US$20 billion cash infusion for Bank of America. The kiwi dollar's advance may be short-lived, with New Zealand government figures this week expected to show weaker retail sales and a drop in the inflation rate, giving the central bank more room to cut interest rates. Trading may be subdued with the Wellington Anniversary Day holiday and the Martin Luther King Day holiday in the US tonight.

The New Zealand dollar rose to 54.99 US cents from 54.68 cents, and gained to 50.04 yen from 49.59 on Friday in the US The kiwi was little changed at 81.27 Australian cents from 81.26 cents and barely budged against the euro at 41.22 euro cents from 41.21.

New Zealand data this week "will add to the downside risks already facing the NZD," said Danica Hampton, currency strategist at Bank of New Zealand. "A re-test of November's sub-0.5200 low is looking increasingly likely."

The consumer price index probably fell 0.4% in the final three months of 2008, swinging from an 18-year high of 5.1% in the third quarter, according to a Reuters survey. The annual rate probably eased back to 3.4% and is expected to slip back within the central bank's 1% to 3% range this year, giving Governor Alan Bollard the confidence to cut the official cash rate 100 basis points to 4% on January 29.

Government figures this week may show retail sales fell 0.9% in November from the previous month, according to the median estimate in a Reuters survey. Excluding autos, sales growth probably stalled after climbing 0.8% in the previous month.

The New Zealand dollar is in "a short-term corrective rally," said Imre Speizer, market strategist at Westpac. "Risk sentiment has only improved for the short term."

Speizer says the kiwi may trade in a range of 54 cents to 55.70 cents today.

By Jonathan Underhill

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