Dollar pares five-month high as Wall St slides

Friday 8th May 2009

The New Zealand dollar pared a five-month high after stocks on Wall Street slid due to a poor reaction to a Treasuries’ auction, and concerns General Motors Corp. could be facing bankruptcy.

The Standard & Poor’s 500 index slipped 1.3% after the US government was forced to offer higher-than-expected yields in the sale of US14 billion worth of Treasuries, raising prospects the Obama administration will having to increase borrowing for its record US$3.55 trillion budget.

General Motors may be more likely to file for bankruptcy in June after it posted a first-quarter loss of almost US$6 billion. Prior to the slump on Wall Street, the trans-Tasman currencies made solid gains on the back of better-than-expected unemployment data yesterday, and moves by the European Central Bank to avoid quantitative easing measures when it cut its benchmark rate 25 basis points to 1%.

“With the S&P weaker, our currency pulled back,” said Imre Speizer, currency strategist at Westpac Banking Corp. “The euro jumped in reaction (to the ECB’s decision) and dragged other risk currencies with it,” which saw the New Zealand dollar pushed higher, he said.

The kiwi as little changed at 59.30 US cents from 59.31 cents yesterday, and neared a five-month high as it reached 59.77 cents. It fell to 58.80 yen from 58.88 yesterday, and dropped to 44.26 euro cents from 44.51 cents. The kiwi was little changed at 78.34 Australian cents from 78.33 cents yesterday.

The New Zealand dollar gained 3.6% this week as optimistic global sentiment stoked investors’ appetite for high-yielding, or riskier, assets.

Speizer said the currency may trade between 58.50 US cents and 59.70 cents today, with a “slight bias” towards the lower end of the range, with the fall in US equities likely to remain the main driver of the kiwi.

Yesterday’s better-than-expected unemployment data in New Zealand and Australia helped lift the trans-Tasman currencies when markets opened in Europe. New Zealand unemployment rose to 5% in the first quarter from 4.7%, while Australia’s fell to 5.4% from 5.7% in the same period.

US Labor Department figures showed fewer Americans filed claims for unemployment benefits last week, and non-farm payrolls, due Friday in the US, are expected the world’s largest economy shed about 600,000 workers in April, pushing the jobless rate to 8.9%.

Across the Atlantic, the European Central Bank cut its benchmark rate in line with expectations to 1%, and President Jean-Claude Trichet signaled there was room for further cuts. He announced plans to buy about 60 billion euros in covered bonds, which are secured by mortgage pools or public debt, as a measure to promote lending, but warned the central bank was not yet pursuing quantitative easing. The euro gained to US$1.3391 from US$1.3319 yesterday.

The Bank of England also reviewed its benchmark rate, and held interest rates at 0.5% as expected. It surprised the market by expanding its quantitative easing programme, and said it would purchase an additional 50 billion pounds worth of corporate and government debt. The pound sterling slid to US$1.5032 from US$1.5141 yesterday.

Businesswire.co.nz

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