Dollar gains on increased risk appetite, talk of Toshin funds

Wednesday 22nd April 2009

The New Zealand dollar gained after US stocks advanced following comments by the US Treasury Secretary that most banks have sufficient capital, stoking investors’ appetite for high-yielding, or riskier assets.

Timothy Geithner told a congressional oversight panel that the majority of US banks are well-capitalised, though toxic debts will probably slow their recovery.

Wall Street gained on the comments, with Citigroup climbing 10% and Bank of America gaining 9% as the Dow Jones Industrial Average rose 1.6%. Investors will be watching for tomorrow’s first-quarter result for Morgan Stanley, the fifth-largest bank in the US, after a string of strong results by financial companies.

“Geithner added to the sentiment” that’s been lifted by a better-than-expected earnings season, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank. “Is it a false dawn? It’s hard to say, but I think things are looking okay.”

The kiwi rose to 56.40 US cents from 55.74 cents yesterday, and gained to 55.69 yen from 54.71 yen. It slipped to 79.26 Australian cents from 79.38 cents yesterday, and gained to 43.59 euro cents from 43.03 cents.

Kelleher said the currency may trade between 56.10 US cents and 56.75 cents today, and has secured a clear range between 55 cents and 60 cents in the last six to eight weeks.

In a sign of improving investor sentiment, Nomura Holdings, Japan’s largest brokerage, is reportedly organising an US$11 billion foreign currency investment, or Toshin fund. That could see as much as US$1 billion invested in New Zealand, Kelleher said.

“The yen crosses are all higher” and investors could be preparing for the launch of the fund, he said. The yen fell to 98.71 yen per US dollar from 98.15 yen yesterday, while the Australian dollar jumped to 70.18 yen from 68.89 yen.

Boosting optimism in Europe was the better-than-expected ZEW business sentiment index in Germany, which increased to a reading of 13 from -3.5, its highest level since July 2007.

Still, Bank of New Zealand currency strategist Danica Hampton said it’s “too early to start calling a recovery in Germany” with suggestions the government is preparing to revise its gross domestic product growth forecast down.

Businesswire.co.nz

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