Kiwi finishes stronger

Wednesday 23rd March 2011

The New Zealand dollar surged to US74.46c during the early hours of Wednesday morning - briefly taking a little limelight as one of the strongest performing currencies in the world - but lost some of its oomph in later trading.

After selling at US74.12c at 8am -- still up from US73.75c at 5pm yesterday -- it slid back until early afternoon when renewed demand allowed it to finish at US74.15c at 5pm today.

The upturn came after Fonterra announced a half-year after-tax profit of $293 million, and confirmed it was on track for a record payout to farmers, which was injecting more than $10 billion into regional economies.

After losing more than US2c in the last week - dropping to US71.15c on Thursday morning - in the wake of Japan's catastrophic earthquake and tsunami, followed by a nuclear crisis in the world's third-largest economy, the kiwi appeared to be recovering.

A BNZ analyst commented that investors had regained some appetite for risk as uncertainty and fear over Japan's nuclear crisis receded, and that this had renewed support for "growth-sensitive" currencies such as the NZ dollar.

In New Zealand, data from the December quarter current account data failed to trigger any reactions: Westpac noted that a minus-2.3% deficit held few fears when current account deficits in the recent past approached double-digit territory.

But more interest may be shown in the December quarter gross domestic product (GDP) data tomorrow.

Once the issue of a "technical" recession has been canvassed, there is likely to be a renewed focus on economic benefits from reconstruction in CHristchurch, and the Rugby World Cup in other centres.

BNZ said the annual current account deficit should slim even further for the year to December, to about 2.3% to 2.4% of GDP.

"It might be even less, if the initially-estimated $1.7 billion reinsurance credit from the September 4 earthquake is revised upward. Looking into the March quarter, a bigger credit from February's earthquake may well see the current account move into surplus for the first time since 1973," BNZ said.

Global currency markets were relatively subdued overnight. The euro retreated against the US dollar on worries about Europe's most indebted countries, Associated Press reported.

But the NZ dollar was also buoyant against the euro, up from 0.5185 euro at 5pm yesterday to 0.5230 at the same time today, and it lifted against the battered yen, from 59.73 yen yesterday to 59.96 at 5pm today.

Against the Australian dollar, the NZ dollar also rose, to A73.44c from A73.31c at 5pm yesterday.

The trade weighted index was consequently higher, at 64.94 from 64.61.

But the Australian dollar lifted against the greenback, up to A73.44, against A73.31 at 5pms yesterday.

Though the US dollar is considered a safe haven asset by investors; with the belief that the nuclear crisis in Japan has eased and that central banks overseas will raise interest rates ahead of the Federal Reserve, investors are looking to other currencies.

Despite this, the euro fell against the US dollar, to 1.4177, at 5pm, from 1.4222 at the same time yesterday. The yen was also down fractionally, at 80.89 compared with 80.99 at the end of Tuesday.

NZPA

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