Dollar edges higher as Bernanke's upbeat comments stoke risk appetite

Wednesday 16th September 2009

The New Zealand dollar edged higher as Federal Reserve Chairman Ben Bernanke’s upbeat assessment of the US economy stoked investors’ appetite for higher-yielding, or riskier, assets.

Stocks on Wall Street and in Europe climbed, oil and metals advanced and safe haven currencies such as the greenback and yen declined after Bernanke said recession in the world’s largest economy “is very likely over at this point”.

Adding to the outburst of optimism was stronger-than-expected US retail sales, which jumped 2.7% last month, the biggest gain in three years. The Dollar Index, a measure of the greenback versus a basket of currencies, slipped 0.5% to 76.52, while the yen was little changed at 91.06 per US dollar.

The kiwi advanced to 70.53 US cents from 69.96 cents yesterday, and has surged 8.9% in the past two months.

It rose to 64.32 on the trade-weighted index, or TWI, a measure of the currency versus the Australian dollar, greenback, yen, euro and pound, from 63.99. It climbed to 64.19 yen from 63.78 yen yesterday, and edged up to 48.07 euro cents from 47.94 cents.

“At these levels, the kiwi’s looking a little toppy” against the greenback, said Mike Jones, strategist at Bank of New Zealand. “Everything seems to be US dollar negative,” but it does have some “solid support around here,” he said.

Jones said the currency may trade between 69.50 US cents and 71 cents today as it takes it cues from Asian equity markets today. Still, the 70.80 cents high, reached on Friday in New York, will be probably be too much of a hurdle for it, and he doesn’t expect the kiwi to rise above 71 cents in the near-term.

The Reserve Bank of Australia is still bullish on the state of the economy, but isn’t willing to bring forward its timetable to hike interest rates, according to the minutes released yesterday.

Still, traders were looking for some hint around tighter monetary policy. The kiwi increased to 81.64 Australian cents from 81.51 cents yesterday.

“People got ahead of themselves - all worked up thinking the RBA would come out all guns blazing, but they didn’t,” Jones said. “We’re still bearish on the kiwi-Aussie cross, which looks overstretched at these levels.”

Bank of England Governor Mervyn King told the UK Parliament’s Treasury Committee the central bank is considering lowering its deposit rate to help boost lending by financial institutions. The pound slipped to US$1.6482 from US$1.6498, while the kiwi climbed to 42.73 pence from 42.40 pence.

Businesswire.co.nz

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