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Kiwi holds above US73c ahead of local employment data

Thursday 5th August 2010

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The New Zealand dollar held above 73 US cents ahead of today’s employment data which are expected to show an improvement in the domestic labour market as more people get back into the work force.

Today’s household labour force survey is expected to show New Zealand’s employment participation rose to 68.2% in the three months through June from 68.1% in the previous period, though the jobless rate will likely rise to 6.4% after it plunged last quarter.

The kiwi dollar shrugged off more declines in milk prices after an 8.3% fall on Fonterra Cooperative Group’s online trading auction, as well throat-clearing from Finance Minister Bill English that the strong currency “will impede economic recovery”.

“The indications are that the labour market will continue to improve, and how the New Zealand dollar responds is key – it seems to go up on negative news, so imagine what it will do with positive data,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

“There seems to be underlying demand for the currency at this level, but once that demand is satisfied, it should be ripe for a move lower.”

The kiwi climbed to 73.45 US cents from 73.03 cents yesterday, and rose to 67.83 on the trade-weighted index of major trading partners’ currencies from 67.33. It gained to 63.37 yen from 62.90 yen yesterday, and was little changed at 80.09 Australian cents from 80.01 cents. It increased to 55.83 euro cents from 55.33 cents yesterday, and advanced to 46.22 pence from 45.89 pence.

Goh said the currency may trade between 73.06 US cents and 73.76 cents today, as investors wait for tomorrow’s US employment data. The market is expecting the Federal Reserve to extend its quantitative easing programme when it meets next week, and a deteriorating employment outlook will make them take a more pessimistic view.

Investors’ appetite for riskier, or higher-yielding, assets was stoked by better-than-expected data in the US, ahead of Friday’s non-farm payrolls data. The ADP employment survey showed 42,000 jobs were added in the private sector, while the ISM non-manufacturing index rose to 54.3 last month, instead of the forecast decline.

The Bank of England and European Central Bank will review their respective benchmark interest rates today, though markets aren’t expecting any change from either institution.

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