Kiwi gains as data stokes appetite for risk

Monday 27th September 2010

The New Zealand dollar climbed back over 73 US cents as stronger data in Europe and the US stoked investors' appetite for higher-yielding, riskier assets, and helped push stock markets up.

Stocks in Europe rose after a key German survey of business sentiment rose to its highest level in two years, easing concerns about the state of the region's economy. Improving orders for durable goods in the US propped up shares on Wall Street.

Investors continued to eschew the greenback, which fell to a seven-month low 79.27 on the Dollar Index, a measure of the US dollar against a basket six currencies.

America's currency has been under pressure after the US Federal Reserve flagged soft inflation as a concern, and a possible cause for more quantitative easing.

"It's a bit of a perfect storm for the US dollar with expectations of additional future easing and generally improving risk appetite," said Mike Jones, strategist at Bank of New Zealand.

Though it gained against the greenback, "the kiwi was at the bottom end of the performance rankings" due to last week's data showing the economic recovery had stalled, he said.

The kiwi climbed to 73.35 US cents from 72.81 cents on Friday in New York, and edged up to 66.41 on the trade-weighted index of major trading partners' currencies from 66.37.

It was up to 61.75 yen from 61.69 yen last week, and fell to 76.46 Australian cents from 76.53 cents. It dropped to 54.37 euro cents from 54.70 cents on Friday in New York, and decreased to 46.36 pence from 46.45 pence.

Jones said the currency may trade between 72.50 US cents and 74 cents today, with offshore sentiment the major driver for most of the week in the absence of any top tier local data.

Japanese Prime Minister Naoto Kan talked down speculation the Bank of Japan intervened in currency markets on Friday, saying he hadn't heard of another intervention taking place.

The yen spiked up 1% against the kiwi late on Friday, sparking rumours the central bank had acted for a second time in a week.

Last week, the Ways and Means Committee approved a bill be sent to the US House of Representatives allowing the Commerce Department to impose duties on goods from countries with undervalued currencies.

Though Congress will vote on it this week, it isn't expected to reach Senate until next year.

China and the US have been at loggerheads over the weakness of the yuan since the global financial crisis, with America calling for the Chinese government to appreciate its currency. Last week, Premier Wen Jiabao dismissed claims a revaluation of the yuan would increase the number of jobs in the US.

Businesswire.co.nz

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