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Kiwi gains as Bernanke says more easing still possible

Monday 30th August 2010

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The New Zealand dollar climbed by almost 1 cent after Federal Reserve chairman Ben Bernanke said he’d print more money if the US economy deteriorated significantly, stoking investors’ appetite for riskier, or higher-yielding, assets.  

Bernanke opened the central bankers’ summit in Jackson Hole, Wyoming, with a keynote address saying the world’s biggest economy hadn’t bounced back as strongly as expected, and that unconventional measures, such as quantitative easing, will be used “if the outlook were to deteriorate significantly”.

The Dow Jones Industrial Average climbed 1.7% on Friday in New York on the strong stance taken by the Fed, helped by smaller downward revisions to second-quarter US growth. The rally stoked investors’ appetite for risk, which pushed the Australian and New Zealand dollars up 1.8% and 1.4% respectively.

“Bernanke came out and said unconventional measures are there if they need to use them – that’s as good as anyone could have guessed and matched their expectations,” said Imre Speizer, market strategist at Westpac.

“Risk will be on for a couple of days” which should help the kiwi dollar test up to 72 US cents, he said.

The kiwi jumped to 71.40 US cents from 70.42 cents on Friday in New York, and gained to 66.74 on the trade-weighted index of major trading partners’ currencies from 66.03. It climbed to 60.99 yen from 59.64 yen last week, and dropped to 79.10 Australian cents from 79.39 cents. It increased to 55.95 euro cents from 55.37 cents last week, and advanced to 45.94 pence from 45.39 pence.

Speizer said the currency may trade between 70.60 US cents and 72 cents today, with initial support from Asian markets when they open and take in the upbeat sentiment.

The National Bank Business Outlook will show whether New Zealand businesses have lost more confidence amid a deteriorating outlook for the economy, and will have more bearing on investors’ sentiment than last month’s merchandise trade data.

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