Dollar holds near four-week high

By Paul McBeth

Monday 16th March 2009

The New Zealand dollar held near a four-week high as finance ministers from the 20 biggest economies pledged to "take whatever action is necessary until growth is restored," helping underpin investor interest in high-yielding, or riskier, assets.

The Group of 20 finance ministers and central bankers promised a "sustained effort" to end the global recession, issuing a 12-point plan dealing with banks' toxic assets. The proposal didn't specify how assets would be valued, but US Treasury Secretary Timothy Geithner hinted an announcement could be made soon.

The G-20 also pledged to help emerging economies, which could see a doubling of the International Monetary Fund's US$250 billion funds available. Appetite for riskier assets increased last week as equity markets recovered, with the Standard & Poor's 500 index surging 10.7%.

The G20 statement didn't contain "anything to disappoint the markets," helping lift optimism that measures were underway to drag the global economy out of recession, said Khoon Goh, senior markets economist at ANZ National Bank. "The strong rally in US equities held, and continuing from that, the New Zealand dollar benefited."

The kiwi fell to 52.45 US cents from 52.53 cents last week, and dropped to 51.36 yen from 51.78 yen. It declined to 79.75 Australian cents from 79.79 cents last week, and decreased to 40.59 euro cents from 40.66 cents.

Goh said the currency may trade between 52.08 US cents and 52.98 cents today. The kiwi will probably start declining when the country's gross domestic product and balance of payments data are released at the end of the month, he said.

The Reserve Bank last week said the economy probably shrank 0.8% in the fourth quarter and is heading for a similar contraction in this quarter. That lags forecasts such as ANZ National's, which is for a 1.5% fourth quarter contraction.

Governor Alan Bollard cut the official cash rate by 50 basis points to a record low 3% last week.

The central bank's decision to retain relatively high interest rates, and avoid a near-zero policy "provided a short-term boost to the dollar" which may see it go near 54 cents, Goh said. In eight months, the bank has slashed 5.25 percentage points from the benchmark rate, embarking on the steepest easing of monetary policy since the inception of the OCR in 1999.

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