Dollar holds above 53 US cents on signs of US housing revival

By Paul McBeth

Wednesday 18th March 2009

The New Zealand dollar held above 53 US cents for the second day as US stock markets gained on an unexpected rebound in home construction, supporting investor's appetite for high-yielding, or riskier, assets.

US stocks advanced as construction began on 583,000 homes for the month of February at an annual rate, exceeding the expected 450,000, Commerce Department figures in Washington showed. The Standard & Poor's 500 rose 3.2% ahead of tomorrow's meeting of the Federal Open Market Committee, which is expected to announce more plans to revive the flagging US economy. European data was also upbeat, with German investor confidence rising to its highest level in two years, according to a ZEW Center for European Economic Research survey.

The US housing data and "mild equity strength supported risk appetite," said Imre Speizer, currency strategist at Westpac Banking Corp. The kiwi may extend gains if the Federal Reserve decides to buy more US Treasuries, a move that would be "bearish for the US dollar," he said.

The New Zealand dollar rose to 53.02 US cents from 52.91 cents yesterday, and increased to 52.27 yen from 52.15 yen. It dropped to 80.14 Australian cents from 80.45 cents yesterday, and fell to 40.73 euro cents from 40.77 cents.

Speizer forecasts the currency may trade between 52.40 US cents and 53.40 cents today, with more pressure on the downside. The kiwi may push to 54 US cents in the coming week, before falling lower in the medium term, he predicts.

The Bank of Japan meets tonight and may provide as much as one trillion yen of subordinated loans to banks as part of the stimulus needed to kick-start the economy. Japan's gross domestic product shrank at an annualised 12.1% in the three months to December 31, its fastest contract since 1974.

The yen might extend its losses if the central bank considers buying government bonds to revive the economy, said Speizer. The yen fell against the US dollar, rising to 98.56 yen per dollar from 98.46 yesterday.

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