NZ dollar gains on prospects for U.S. stimulus package

By Paul McBeth

Monday 9th February 2009

The New Zealand dollar gained as the growing prospect of American lawmakers passing President Barack Obama's stimulus package stoked investor appetite for high yielding, or riskier, assets.

The Senate is to vote Tuesday on the US$800 billion stimulus package after a group of moderate lawmakers from both Republicans and Democrats drafted a compromise bill which may give Obama a narrow victory on the package he promoted. A slump in non-farm payrolls is expected to erode opposition to the plan. Separately, U.S. Treasury Secretary Timothy Geithner will tomorrow detail plans to shore up the financial sector using the remaining TARP funds. Australian commentators Ross Gittins and Alan Mitchell are predicting the Reserve Bank of Australia will stop cutting its benchmark rate, which may help lift the Australian currency against its peers including the kiwi.

"There's been quite a bit of buying of all currencies, but the Aussie's been the leader," said Tim Kelleher, corporate risk manager at ASB Bank. "The risk is that people may start to price the New Zealand dollar on the basis that the Reserve Bank of New Zealand will keep the official cash rate at 3.5%," he said.

The kiwi jumped to 52.89 U.S. cents from 51.92 cents last week, and rose to 48.63 yen from 47.40 yen. It was up to 40.86 euro cents from 47.40 cents last week, and fell to 78.59 Australia cents from 78.87.

Kelleher said the currency may trade between 52.75 U.S. cents and 53.50 cents today. Even though the currency has been volatile in recent weeks, it's "still been trading in a broad range," he said.

The International Monetary Fund said advanced economies were already in a "depression" and that unless the banking system is repaired, the financial crisis may deepen.

New Zealand investors will be taking their cue from company earnings which are expected to show weaker profits as the impact of the recession becomes more transparent. The season kicks off this week with Fletcher Building Ltd. and Telecom Corp.

(Businesswire.co.nz)

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