Dollar gains as Bernanke soothes concerns about US economy

Wednesday 9th June 2010

The New Zealand dollar gained from near a 10-month low after US Federal Reserve Chairman Ben Bernanke helped soothe fears the world’s biggest economy would get dragged down by the debt crisis in Europe, and investors locally prepare for tomorrow’s monetary policy statement.

Bernanke talked down the likelihood of a double-dip recession, saying America’s economy has enough momentum to pull through the current blip. His comments, along with some upbeat small business confidence data, helped boost stocks on Wall Street, with the Dow Jones Industrial Average up 1.3%.

The more benign environment encouraged traders to take on more risk-sensitive assets, and an expected hike in New Zealand’s official cash rate tomorrow will help keep the lid on any short-selling in the kiwi, where investors sell an asset in the expectation they can buy it at a discount later.

“As long as it hears some positive news, the market could run with it,” said Imre Speizer, market strategist at Westpac Banking Corp.

“If global sentiment maintains at least a neutral tone, punters will be reluctant to go short (on the kiwi) ahead of” the Reserve Bank’s MPS tomorrow, he said.

The kiwi climbed to 66.72 US cents from 65.82 cents yesterday, and rose to 65.72 on the trade-weighted index of major trading partners’ currencies from 65.07. It gained to 60.97 yen from 60.13 yen yesterday, and slipped to 80.72 Australian cents from 80.84 cents.

It increased to 55.85 euro cents from 55.26 cents yesterday, and advanced to 46.25 pence from 45.72 pence. Speizer said the currency will likely “move up to 67 US cents” after its support at 65.80 cents held for the third time in the past 24 hours.

Investors will probably hold their breath until central bank Governor Alan Bollard makes his statement tomorrow, where he’s expected to hike the OCR 25 basis points to 2.75%, according to a Reuters survey.

Bollard made it clear in his last OCR review that New Zealand’s economy had bounced back faster than anticipated, with surging dairy prices underpinning a strong performance in the export sector, and he’s being forecast to look through the current turmoil in Europe and expected inflationary effects of an October hike in GST and the introduction of an Emissions Trading Scheme next month.

Traders are betting Bollard will lift the OCR 1.61 percentage points over the next 12 months, according to the Overnight Index Swap curve, taking it back to a more normal setting.

Finance Minister Bill English will defend his spending priorities in front of Parliament’s Finance and Expenditure Committee today, while across the Tasman, Reserve Bank of Australia Governor Glenn Stevens will give a speech to a business audience this afternoon.

Businesswire.co.nz

Comments from our readers

No comments yet