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Kiwi holds above US71c as prospect of more M&A stokes risk appetite

Thursday 19th August 2010

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The New Zealand held above 71 US cents for a second day as investors’ appetite for riskier, or higher yielding, assets was stoked on the prospect of more merger and acquisition activity.

Markets expect the world’s biggest mining company, BHP Billiton, to make a hostile bid for Potash of Saskatchewan after the Canadian fertiliser company knocked back its takeover offer yesterday.

Stocks on Wall Street held on to yesterday’s gains, with the Dow Jones Industrial Average up 0.1%, with the recent US earnings season showing corporates are flush with cash after deleveraging last year.

The prospect of more M&A activity helped bolster confidence in equity markets which spilled over into risk-sensitive assets such as the kiwi.  

“The emergence of signs of takeover activity helped underpin equity valuations, and there’s belief that could feature in other asset classes,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

“BHP is getting people thinking about what could be the next stage, which helped equities recovery, and subsequently the kiwi is continuing to follow suit.”

The kiwi slipped to 71.43 US cents from 71.54 cents yesterday, and was little changed at 66.60 on the trade-weighted index of major trading partners’ currencies from 66.62. It traded at 61.01 yen from 61.04 yen yesterday, and rose to 79.51 Australian cents from 79.28 cents. It edged up to 55.54 euro cents from 55.47 cents yesterday, and gained to 45.79 pence from 45.69 pence.

Goh said the currency may trade between 71.35 US cents and 72.05 cents today, and is taking its leads from offshore equities.

The ANZ Roy Morgan Consumer Confidence survey comes out today, and is expected to extend its declines of the past two months as people feel worse off than they did last year.

Goh said the kiwi will remain strong against its trans-Tasman counterpart this week as the prospect of a hung parliament in Saturday’s Federal election adds uncertainty into the mix, and weighs on traders’ opinion of the Australian currency.

The minutes from Bank of England’s August meeting quashed speculation the central bank was considering extending its quantitative easing programme, with the committee voting 8-1 in favour of keeping interest rates and asset purchases on hold. Andrew Sentance was again the lone voice of dissent, calling for a hike in interest rates.

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