Dollar gains as US corporate earnings stoke risk appetite

By Paul McBeth

Tuesday 14th April 2009

The New Zealand dollar gained over the Easter holiday as better-than-expected bank profits in the US stoked appetite for high-yielding, riskier assets.

Goldman Sachs Group Inc., the sixth largest bank in the US, reported a first-quarter profit of US$1.81 billion, while Wells Fargo & Co., the second-biggest US home lender, announced an increase in net income to US$3 billion from US$2 billion a year earlier. Wall Street was subdued in trading with the Standard & Poor's 500 index gaining 0.3%. If corporate earnings continue to outperform, investors will probably seek higher returns, eschewing safe havens.

"US earnings results will be the bellwether this week," said Philip Borkin, economist at ANZ National Bank. "Risk appetite has improved and the kiwi and Aussie dollars have benefitted," he said.

The kiwi climbed to 59.23 US cents from 58.23 cents last week, and gained to 59.25 yen from 58.46 yen. It sank to 44.25 euro cents from 44.30 cents, and dropped to 80.91 Australian cents from 80.94 cents.

Borkin said the currency may trade between 58.80 US cents and 59.50 cents today, and could test support for 60 cents. If the New Zealand dollar continues to push higher, it could snap back very sharply, he said.

Growing speculation the Chinese government is considering additional stimulus to boost consumption and lift growth boosted international sentiment after the Oriental Morning Post reported the State Council will discuss a new package on April 15. The Chinese economy probably grew 6.3% in the past 12 months, down from 6.8% in the previous three months, according to the median estimate of a Bloomberg survey.

Locally, the currency may come under pressure if retail sales in February continue to show weakness in the economy. The data looks "likely to tell of further weakness in the sector", said Danica Hampton, currency strategist at Bank of New Zealand. BNZ economists expect retail sales to gain 0.2% month-on-month, excluding car sales, compared to the market expectation of 0.1%.

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