Dollar slips as Wall Street stocks turn on earnings

Thursday 22nd October 2009

The New Zealand dollar slipped below 76 US cents after a late turn on Wall Street eroded investors' appetite for higher yielding, riskier assets after Boeing announced a larger loss than expected in the third quarter.

Boeing Corp., the maker of the long-delayed Dreamliner 787, made a net loss of US$1.6 billion in the third quarter, and sparked a turn in equity markets that had earlier been buoyed by strong results from banks Wells Fargo and Morgan Stanley. Risk appetite eased after surging early in the session, and the Dow Jones Industrial Average dropped below the psychologically important 10,000 mark, falling 0.9%.

Still, the kiwi dollar continued to outperform and is on an upward trajectory as markets bet the Reserve Bank of New Zealand will hike interest rates earlier than expected. Governor Alan Bollard told a Parliamentary select committee yesterday that the high kiwi dollar wouldn't prevent him from raising rates in the future, as the market has already prepared itself and "got ahead of monetary policy."

"Comments from Bollard contributed to the New Zealand dollar's run, although the markets probably took them the wrong way," said Philip Borkin, economist at ANZ National Bank. "Still, the kiwi's at elevated levels, having broken through the 76 mark."

The kiwi rose to 75.82 US cents from 75.66 cents yesterday and advanced to 67.75 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 67.58. It rose to 68.91 yen from 68.67 yen yesterday and slipped to 50.53 euro cents from 50.60 cents.

It increased to 81.84 Australian cents from 81.66 cents yesterday and was little changed at 45.72 pence from 45.66 pence. Borkin said the currency may trade between 75.75 US cents and 76.50 cents today, and with little data on the horizon today and tomorrow, traders will be looking towards the central bank's review of the official cash rate next week.

Bollard is expected to keep the OCR at a record low 2.5% next week, though economists are predicting he will remove the easing bias in his statement and tone down some of the rhetoric.

AMP Capital Investors' head of investment strategy Jason Wong told reporters earlier this week that Bollard can't credibly raise interest rates as early as the market's expecting given his strong stance over the past year, and he predicts the central bank to move in March.

Businesswire.co.nz

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