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NZ dollar gains as IMF lifts global growth forecast, Spain sells debt

Wednesday 18th April 2012

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The New Zealand dollar gained after the International Monetary Fund raised its forecast for global growth and Spain drew solid demand at its debt auction, boosting equities on Wall Street and in Europe.

The New Zealand dollar rose to 82.15 US cents at 8am from 81.62 cents at 5pm yesterday.

US equities their biggest gains in April, with the Standard & Poor’s 500 Index up 1.6 percent, while the Dow Jones Industrial Average rose 1.55 percent. Europe’s Stoxx 600 Index advanced 2 percent. First-quarter earnings in the US underpinned gains, with 74 percent of the 39 companies that reported on the S&P 500 on Tuesday exceeding analysts' predictions, according to Reuters.

The IMF raised its forecast for global growth for the first time in more than a year.

The world economy is expected to expand 3.5 percent in 2012, compared with a January projection of 3.3 percent. The Washington-based IMF said the US should expand 2.1 percent this year, while New Zealand’s growth is predicted to be 2.3 percent.

“Broadly speaking it was more upbeat but it is open ended on the global side,” said Stuart Ive, currency strategist at HiFX. “The IMF still says that there is a pretty unpleasant danger of a European breakup,”

Investors breathed a collective sigh of relief when Spain grew solid demand for 12-month and 18-month bills at its debt auction. The average 12-month yield was 2.623 percent, compared with 1.418 percent at the last auction on March 20, the Bank of Spain said.

Spain will sell 10-year bonds on Thursday.

“The Spanish debt was well received but the real test for Spain will not come until Thursday,” Ive said.

Prices of dairy products fell 9.9 percent in their biggest decline since July 2010 in Fonterra Cooperative Group’s latest GlobalDairyTrade auction, pushing the price index below its 10-year average. Prices fell for all six products on offer and across all contracts.

“I am surprised the New Zealand dollar hasn’t responded - obviously the markets aren’t really focused on it,” Ive said. “We are taking a more global perspective.”

The kiwi rose to 51.55 British pence from 51.41 pence at 5pm after a report showed inflation accelerated in the UK, fueling speculation the Bank of England will refrain from further asset purchases or quantitative easing.

There is no significant data set for release in New Zealand today. The Consumer Price Index is set for release by Statistics New Zealand on Thursday, with the market pricing in a 0.6 percent increase for the first quarter.

The New Zealand dollar was little changed on 79 Australian cents from 78.97 cents. It rose to 62.55 euro cents from 62.23 cents. It fell to 66.43 yen from 65.62.  The trade weighted index increased to 73.21 from 72.81.

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