NZ dollar holds above 62 U.S. cents on U.S. outlook

Tuesday 26th May 2009

The New Zealand dollar traded above 62 U.S. cents, a seven-month high, as concerns about the state of the U.S. economy spurs investors to eschew the greenback.

With U.S. markets closed for the Memorial Day holiday, investors continued to sell the world’s reserve currency. Nuclear tests in North Korea dragged down the yen, which had found support after the Japanese government upgraded its assessment of the world’s second-largest economy. The kiwi rose on demand for higher-yielding, or riskier, assets.

“If people remain concerned about the U.S. deficit, fiscal spending, and its triple-A rating, the U.S. dollar will come under pressure,” said Danica Hampton, currency strategist at Bank of New Zealand. “There’s talk of retail players in Asia seeking high yields” and that’s helped lifted the kiwi, she said.

The kiwi rose to 62.04 U.S. cents from 61.77 cents yesterday, and gained to 58.83 yen from 58.69 yen. It increased to 79.31 Australian cents from 79.21 cents yesterday, and climbed to 44.27 euro cents from 44.19 cents.

Hampton said the currency may trade between 61.30 U.S. cents and 62.40 cents today, and could break close to 63 cents in the next couple of days as traders sell U.S. dollars.

Germany’s IFO, a measure of business confidence, rose this month as the government injected 82 billion euros into the economy and cut interest rates. The business climate index rose to 84.2 and the current situation index slid to 82.5, both below expectations.

The euro was little changed at US$1.4007 from US$1.3978 yesterday.

European Central Bank council member Axel Weber said it was “too early to call the end of the crisis” and warned unemployment was unlikely to peak until late next year.

New Zealand’s trade balance out this morning will probably the trade deficit shrank to $4.12 billion for the 12 months ended April, according to a Reuters survey.

Fonterra Cooperative Group, the world’s largest dairy exporter, will announce its forecast payout for next season, its first such announcement since the U.S. reintroduced subsidies for American dairy farmers earlier this week. Managing director of global dairy trade Kelvin Wickham told Businessday the subsidies wouldn’t change the forecast, but may impact on the company’s outlook.

Businesswire.co.nz

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