Kiwi climbs on Chinese stimulus talk

By Paul McBeth

Thursday 5th March 2009

The New Zealand dollar rebounded over 50 US cents from a six-year low as global stocks rallied on speculation China will inject more money into its economy.

Stocks surged in Europe and the US amid talk China, the world's largest holder of US Treasuries, will lift manufacturing by boosting expenditure on infrastructure, in addition to its US$585 billion stimulus package, Reuters reported.

In a sign that China, New Zealand's fourth-largest export market, may be weathering the global downturn, figures yesterday showed production manufacturing rose for the third month in a row, reaching 49.0 in February from 45.3 in January.

Commodities also rallied and investors' appetite for higher-yielding, or riskier, assets like the kiwi dollar increased.

Increased Chinese spending may stoke demand for "more Australian and New Zealand commodities," helping lift the currencies, said Imre Speizer, currency strategist at Westpac Banking Corporation. "This is better for the Down Under currencies," he said.

The kiwi jumped to 50.52 US cents from 49.93 cents yesterday, and increased to 50.19 yen from 49.55 yen. It fell to 77.80 Australian cents from 78.32 cents yesterday, and rose to 39.95 euro cents from 39.91 cents.

Speizer said the currency may trade between 50 US cents and 51 cents, and could possibly go higher, but he doesn't expect the rally to last beyond a week.

The Reserve Bank reviews monetary policy next week, and is expected to continue its series of cuts to the official cash rate, which has been slashed by 4.75 percentage points to 3.5% since July.

If Governor Alan Bollard goes ahead with a cut, as is predicted, New Zealand rates will fall below Australian rates, which may weaken the kiwi against the Australian dollar. Speizer said the kiwi may trade between 77.50 Australian cents and 78.50 cents today.

Australia's economy shrank for the first time in eight years in the first quarter, with an unexpected 0.5% contraction. It grew 0.1% in the third quarter, and was expected to grow 0.2% by a Bloomberg survey.

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