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Dollar holds above 71 US cents

Wednesday 21st April 2010

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The New Zealand dollar held above 71 US cents amid another bullish outlook on the Australian economy from the Reserve Bank of Australia, and more upbeat earnings in the US, which stoked investors' appetite for higher-yielding, riskier assets.

The RBA is picking more strength in the Australian economy this year, according to the minutes from its last meeting, raising the prospect of another rate hike next month.

Australia's central bank increased the target cash rate to 4.25% this month, and officials have indicated that it's not far from a normal policy setting.

Some 88% of the companies on the Standard & Poor's 500 index have beaten analysts' expectations in the first quarter earnings season, helping boost stocks on Wall Street, with the S&P 500 up 0.8% and the Dow Jones Industrial Average gaining 0.2%. 

"Earnings in the States are very good - it looks like they're improving on Q4" when some 80% of S&P 500 companies beat forecasts, said Imre Speizer, markets strategist at Westpac Banking Corp.

"The kiwi looks like it's maintaining its glacial drift to around 72 US cents."  

The kiwi was little changed at 71.09 US cents from 71.13 cents yesterday, and edged up to 65.91 on the trade-weighted index, or TWI, from 65.84.

It gained to 66.21 yen from 66.01 yen yesterday, and slipped to 76.31 Australian cents from 76.44 cents. It rose to 52.88 euro cents from 52.68 cents yesterday, and gained to 46.23 pence from 46.19 pence.  

Speizer said the currency may trade between 70.90 US cents and 71.50 cents today and will probably continue to inch higher after the Bank of Canada brought forward the timing of its move to tighter monetary policy to June.  

He expects New Zealand's Reserve Bank will follow a similar course after yesterday's "benign" consumer price index data, which showed a 0.4% gain during the three months through March, and will hint at a rate rise in June, though leave itself enough room to put it off until July if the data comes in weaker than expected.  

"The same sort of thing (as the Bank of Canada announcement) will come out of the Reserve Bank in April. June will be made live barring some hiccup between the meetings, and he will leave an opening for July," Speizer said.  

Markets are betting the Reserve Bank will hike the official cash rate by 155 basis points over the next 12 months, according to Overnight Index Swap curve.

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