Dollar gains as 'green shoots' encourage risk appetite

Thursday 7th May 2009

The New Zealand dollar gained as signs of a brighter economic outlook stoked investor appetite for high-yielding, or riskier, assets, ahead of data today that will probably show unemployment rose to a six-year high.

Bank stocks in the US gained on optimism the so-called stress test results for America’s 19 largest banks, while showing 10 require more capital, finds that they need less than was feared. ADP Employer Services said companies cut a less-than-forecast 491,000 workers from payrolls in April.

Optimism helped US stocks rally, with the Dow Jones Industrial Average up 1.2%, as appetite for growth-sensitive currencies like the kiwi dollar returned. The New Zealand currency may come under pressure when the Household Labour Force Survey is released by Statistics New Zealand today, with unemployment predicted to rise to 5.3%, the highest point since March 2003.

“The green shoots are turning into the darling buds of May,” said Danica Hampton, currency strategist at Bank of New Zealand. “Labour data is likely to show unemployment is higher, and our economists are predicting it will rise to 7% in 2010,” which could see support for the currency taper off, she said.

The kiwi rose to 58.37 US cents from 58.04 cents yesterday, and gained to 57.41 yen from 57.07 yen. It sank to 77.98 Australian cents from 78.35 cents yesterday, and increased to 43.83 euro cents from 43.63 cents.

Hampton said the currency may trade between 57.90 US cents and 58.80 cents today as ongoing optimism the global economy may be improving could “push it to its April highs” in the near-term. The risk to the currency today was weak employment data in New Zealand and across the Tasman.

Unemployment in Australia is likely to rise to 5.9% when official data is released this afternoon, according to a Reuters survey, and weak labour data by the trans-Tasman neighbours could weigh on their currencies, Hampton said.

Japanese markets reopen today after Golden Week holidays ended, and Hampton said it will be interesting to see how Japanese investors respond to the optimistic sentiment that has coloured trading in the last three days. The yen slipped to 98.40 yen per US dollar from 98.28 yen yesterday.

Meanwhile, the European Central Bank is predicted to cut its benchmark rate by 25 basis points to 1% when it meets today in Europe. President Jean-Claude Trichet is expected to outline some unorthodox measures the central bank will use to help lift the Eurozone out of recession. The euro was little changed at US$1.3305 from US$1.3309 yesterday.

Businesswire.co.nz

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