NZ dollar gains on prospect of low US rates following weak employment data

Monday 11th January 2010

The New Zealand dollar gained over the weekend on the prospect that U.S. interest rates will remain at extraordinarily low levels for longer than anticipated after weak employment data in America on Friday.

The world’s largest economy shed 85,000 jobs in December compared to the flat result forecast by analysts, leaving the unemployment rate unchanged at 10%.

U.S. interest rates and the greenback fell sharply in response, eroding the likelihood of an early rate hike by the Federal Reserve in June.

The Dollar Index, a measure of the U.S. dollar against a basket of six currencies, dropped 0.5% to 77.49.

“U.S. interest rates fell sharply and weighed on the U.S. dollar, which declined against all of the majors in its largest weekly fall since November last year,” said Mike Jones, strategist at Bank of New Zealand. “We’re looking for the kiwi to head higher and have another crack above 74 U.S. cents this week, though it needs to close above 74 to signal a more sustained upward trend.”

The kiwi jumped to 73.72 U.S. cents from 73.08 cents on Friday in New York, and gained to 66.84 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.63.

It rose to 68.18 yen from 68.03 yen last week, and slipped to 79.52 Australian cents from 79.70 cents. It increased to 51.11 euro cents from 50.98 cents on Friday, and advanced to 45.95 pence from 45.62 pence.

Jones said the currency may trade between 73.10 U.S. cents and 74.20 cents today with investors reasonably optimistic as they return from their holidays.

“People are getting back in after New Year’s and are reassessing a reasonably positive outlook for 2010 overall,” he said.

Japan’s new Finance Minister Naoto Kan backtracked on his statement last week calling for a weaker yen after Prime Minister Yukio Hatoyamo said the government shouldn’t comment on foreign exchange.

The yen strengthened to 92.45 yen per U.S. dollar from 93.10 on Friday in New York.

Businesswire.co.nz

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