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Kiwi climbs as Wall Street gains ahead of earnings season

Monday 12th July 2010

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The New Zealand dollar climbed above 71 US cents as stocks on Wall Street extended their gains ahead of America’s second-quarter earnings season that kicks off tomorrow.  

The kiwi ended the New York session above 71 US cents for the first time in two weeks as the Standard & Poor’s 500 index gained 0.7% in Friday trading. That’s ahead of the earnings season for the three month period ended June 30, which kicks off on Monday in the U.S. with aluminium manufacturer Alcoa.

Companies on the S&P 500 increased profits by 34% from the same period a year ago, according to analysts’ estimates compiled by Bloomberg. Investor sentiment was underpinned by the release of strong Chinese trade data on Saturday, which showed exports jumped a better-than-expected 44% in June from the same month in 2009.  

“The big drivers this week will be the US reporting season and U.S. data that could be stronger than expected,” said Imre Speizer, market strategist at Westpac Banking Corp.

“We’re getting near the end of line – it’s been a long run up, but this is more of a bear market rally” and the kiwi will likely pull back in the coming week, he said.  

The kiwi rose to 71.03 US cents from 70.88 cents on Friday in New York, and gained to 67.50 on the trade-weighted index of major trading partners’ currencies from 67.27. It advanced to 63.02 yen from 62.80 yen last week, and slipped to 80.91 Australian cents from 81 cents. It climbed to 56.24 euro cents from 55.93 cents last week, and increased to 47.12 pence from 46.66 pence.  

Speizer said the currency may trade between 70.80 US cents and 71.60 cents today, with offshore sentiment driving the currency’s direction this week.  

Stronger than forecast employment growth in Canada helped underpin investors’ sentiment for higher-yielding, or riskier, assets, and raised the likelihood the Bank of Canada will hike its benchmark interest rate when it meets on July 21.  

ANZ New Zealand economists said Australia is viewed as a proxy measure for growth sentiment, and its strong employment data last week has investors pricing in hikes to the nation’s target cash rate again.

Australia embarked on tightening monetary policy last October after it avoided a recession amid solid demand for its raw materials from China. The Australian benchmark rate is 4.5%, 225 basis points above New Zealand’s.

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