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NZ dollar jumps on global growth optimism; demand wanes for safe haven currencies

Thursday 5th September 2013

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The New Zealand dollar surged on optimism global economic growth is recovering and as safe haven currencies declined in light of no imminent western military action in Syria.

The kiwi jumped to 79.07 US cents at 8am in Wellington from 78.08 cents at 5pm yesterday. The trade-weighted index advanced to 74.70 from 74 yesterday.

Growth-sensitive currencies such as the kiwi and the Aussie advanced after a report showed China's services industry accelerated, boosting investor optimism about the outlook for global growth. Meanwhile, western military action in Syria is still uncertain as a vote on the issue heads to the US Senate next week while Russia says the US has no right to use force against Syria without the backing of the UN Security Council.

"The New Zealand dollar has been the strongest performing currency over the past 24 hours," Mike Jones, currency strategist at the Bank of New Zealand, said in a note. "Global risk aversion eased up overnight as buoyant service sector data reinforced the notion global growth is picking up. In addition, tensions over military action in Syria haven't kicked on."

The Antipodean currencies gained after data showed growth in China's services sector rose to a five-month high of 53.9 in August, above the 50 level that indicates expansion, underpinned by new orders and business optimism.

The New Zealand dollar rose to 86.21 Australian cents at 8am in Wellington from 85.78 cents at 5pm yesterday. Traders are awaiting a report on Australia's trade balance for July at 1:30pm local time after data yesterday showed economic growth unexpectedly accelerated last quarter.

The focus of investors will tonight shift to the US labour market, which is seen as a key indicator to help determine whether the Federal Reserve will cut back on its US$85 billion a month bond buying programme this month. Tonight's ADP private-sector jobs number will be seen as a guide for the government's key non-farm payrolls report tomorrow.

Traders will also be watching for the Bank of Japan's latest policy decision to be released this afternoon.

"No change in policy is expected now that Japanese inflation is picking up and cyclical indicators are improving," said the BNZ's Jones. "But further action later in the year cannot be ruled out."

Jones says this underpins his expectation that the New Zealand dollar will push above 80 yen in the fourth quarter of this year.

The kiwi surged to 78.75 yen at 8am in Wellington from 77.85 yen yesterday as demand fell for the safe haven currency.

The local currency advanced to 59.83 euro cents from 59.31 yesterday ahead of today's European Central Bank meeting where Mario Draghi may comment on recent improvements in European economic data while reiterating that rates will stay low for an extended period, Jones said.

The New Zealand dollar gained to 50.56 British pence from 50.16 pence ahead of the Bank of England meeting today. Governor Mark Carney may try to talk the sterling lower, which could provide a buying opportunity, ANZ New Zealand strategist Carrick Lucas said in a note.

No change in policy is expected from the European Central Bank, the Bank of England or Sweden's Riksbank today.

BusinessDesk.co.nz

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