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Dollar gains as US stocks rally

By Paul McBeth

Monday 24th November 2008

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The New Zealand dollar halted its downward slide, gaining after US stocks rallied on the nomination of Timothy Geithner as President-elect Barack Obama’s Treasury Secretary.

US stocks rebounded on Friday after the nomination of Geithner, seen as a safe pair of hands to handle the economic crisis. The Standard & Poor’s 500 Index rose 6.3%, paring its weekly decline to 8.4%. In New Zealand, the central bank is poised to slash interest rates as much as 100 basis points next week to help alleviate the impact of what may be the world’s worst slump since the Great Depression. Further rate cuts are likely to extend the kiwi’s 29% decline in the past six months.

“A rebound was always expected to come at some stage,” said Khoon Goh, senior markets economist at ANZ National Bank. “The long-term trend is still down.”

The New Zealand dollar rose to 53.84 US cents from 53.19 cents on Friday, and increased to 51.11 yen from 50.63 yen. It fell against the Australian dollar to 84.98 cents from 85.21 cents on Friday.

Goh said the kiwi may trade between 53.25 US cents and 54.50 cents today. ANZ National Bank predicts the New Zealand dollar will end the year in the mid 50s range against the US dollar, though Goh said he doesn’t rule out a fall below 50 US cents.

Leaders of the 21-nation Asia-Pacific Economic Cooperation group, which accounts for half of world output, called for improved corporate governance and backed efforts to thaw frozen credit markets at their summit in Peru. The leaders also promised not to erect new barriers to international trade.

In New Zealand, economic data out this week is expected to “tell a story of woe,” said Danica Hampton, Bank of New Zealand currency strategist. October’s annual trade deficit is forecast to widen to $5.2 billion from $5 billion and residential housing consents will “tell of a struggling new housing market.”

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