NZ dollar rises to six-week high

Monday 28th June 2010

The New Zealand dollar touched a six-week high above 71.50 US cents as the local economic recovery attracts support from investors, amid downbeat American data.

New Zealand’s economy grew 0.6% in the first three months this year while the current account deficit shrank to 2.4% of gross domestic product, according to government data, stoking investors’ appetite for the kiwi dollar, and widening NZ-US three-year swap spreads to 320 basis.

That contrasted with the downward revision to American first-quarter growth to an annual 2.7%, while consumer spending grew at a slower pace than expected.

Today’s release of the National Bank Business Outlook will likely show firms are still upbeat about the economy, with stronger prices for raw materials expected to underpin optimism in the rural sector.

“The NBBO survey will probably be fairly unchanged – a couple of crosswinds with global sentiment deteriorating offset by an improving rural sector,” said Mike Jones, strategist at Bank of New Zealand. “More people are seeing signs of an ongoing recovery in New Zealand’s economy – interest rate spreads increased reflecting New Zealand’s economic outperformance, and the kiwi will be supported on dips.”

The kiwi jumped to 71.53 U.S. cents from 70.03 cents on Friday in New York, and climbed to 68.48 on the trade-weighted index of major trading partners’ currencies from 67.50. It advanced to 63.82 yen from 62.74 yen last week, and increased to 81.82 Australian cents from 81.29 cents. It gained to 57.77 euro cents from 57.09 cents on Friday, and was rose to 47.46 pence from 47.06 pence.

Jones said the currency may trade between 70.80 US cents and 71.60 cents today, saying the weak American data indicates there “signs of fragility in the U.S. dollar,” and the Federal Reserve is less optimistic about the US recovery.

Leaders from the Group of 20 nations met in Canada over the weekend, and moved away from the coordinated response they took to the global financial crisis, saying fiscal tightening will need a more tailored approach to national circumstances.

The G20 also praised China for moving to appreciate the yuan, though Chinese officials reaffirmed that they wouldn’t be pressured into strengthening the currency ahead of schedule.

Businesswire.co.nz

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