Dollar extends gains on strong Chinese export data and OCR hike

Friday 11th June 2010

The New Zealand dollar extended yesterday's gains as strong Chinese export data supported investors' return to higher-yielding, riskier assets after New Zealand's central bank tightened monetary policy, stoking demand for the kiwi currency.

Chinese exports surged almost 50% last month compared to May 2009, helping stoke investor confidence in the global recovery, which has been driven by demand for raw materials in the world's third biggest economy.

The European Central Bank helped allay investors' fears about the sovereign debt crisis facing the region, extending its three-month emergency loan facility until September.

The changing global environment encouraged traders to back so-called risk assets, such as the kiwi, that had already fallen into favour after the Reserve Bank of New Zealand hiked the official cash rate a quarter-point to 2.75%, and signalled a gradual return to normal monetary policy settings.

"The kiwi has been the star currency with the strongest performance over the past 24 hours," said Mike Jones, strategist at Bank of New Zealand.

"Its yield advantage widened, and we've seen a bit more demand against a global backdrop that's more in the kiwi's favour with equity markets and commodity prices up stronger across the board."

The kiwi climbed to a week-high 68.73 U.S. cents from 68.04 cents yesterday, and advanced to 66.84 on the trade-weighted index of major trading partners' currencies from 66.47.

It jumped to 62.75 yen from 62.06 yen yesterday, and was unchanged at 80.81 Australian cents. It increased to 56.61 euro cents from 56.37 cents yesterday, and edged up to 46.68 pence from 46.62 pence.

Jones said the currency may trade between 67.80 U.S. cents and 69 cents today, and if it closes above the top end of the range, the recent down-trend will likely be over.

"We'll probably see key markets take the kiwi a little higher today as the positivity flows into Asian equities," Jones said.

Chinese manufacturing and inflation data will be the focus for traders today, he said. Australia's unemployment rate unexpected dropped to 5.2% last month, in a further indication that the trans-Tasman economies that have come through the global financial crisis in better states than their European and American counterparts, and underpinning support for the region.

The Dow Jones Industrial Average Index climbed 2.8%, taking it back over 10,000 for the first time in a week.

Businesswire.co.nz

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