NZ dollar gains as Germany approves Greek bail-out, market's nerves settle

Monday 24th May 2010

The New Zealand dollar gained after Germany’s Parliament approved its contribution to the Greek bail-out package, helping settle investors’ nerves about so-called riskier assets and lifting American stock.

German legislators agreed to its share of the 860 billion euro package to shore up the region’s financial stability and bail-out Greece from its debt woes, while European policymakers talked up the euro as a “credible currency.” European Union finance ministers pledged tougher sanctions for countries with high deficits, and proposed extending sanctions on members that fail to keep a balanced budget in strong economic times.

Stocks on Wall Street gained amid the more upbeat outlook in Europe, and were supported by the US Senate’s approval of a bill toughening up financial regulations, which gave lenders more certainty about their future.

“US stocks gained and investors are dipping their toes back into growth sensitive currencies like the kiwi,” said Mike Jones, strategist at Bank of New Zealand. “The kiwi got a little oversold last week in an environment where investors were taking risk off the table.”

The kiwi gained to 67.90 US cents from 67.43 cents on Friday in New York, and advanced to 65.70 on the trade-weighted index of major trading partners’ currencies, from 65.35. It climbed to 61.36 yen from 60.72 yen on Friday, and edged up to 81.38 Australian cents from 81.24 cents. It rose to 54.08 euro cents from 53.88 cents last week, and was little changed at 46.90 pence from 46.87 pence.

Jones said the currency may trade between 66.90 US cents and 68.80 cents today, with offshore sentiment guiding the kiwi.

Though it’s still below BNZ’s fair value range of between 70 cents and 72 cents, Jones said he doubts it will break above 70 cents this week.

BNZ economists are picking the Reserve Bank of New Zealand will begin to hike interest rates at its meeting next month, and investors have pared back their expectations for increases in the official cash rate to 164 basis points over the next 12 months, according to the Overnight Interest Swap curve. That’s down from an expected 215 basis points on May 6.

The Bank of Japan upgraded its outlook for the world’s second biggest economy, predicting moderate growth. It also announced a loan scheme targeting so-called growth industries, and suggested it may accept a broader range of collateral for its operations.

Businesswire.co.nz

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