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Kiwi jumps to six-month high after strong US housing data

Tuesday 27th July 2010

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The New Zealand dollar climbed to a six-month high as a surge in new home sales in the US stoked investors’ appetite for higher-yielding, or riskier, assets.  

American new home sales jumped 24% last month, taking the inventory of unsold homes to its lowest level in 40 years. Stocks on Wall Street gained on the news as investors eschewed so-called safe havens such as the greenback, and the Dollar Index dropped 0.5% to 82.05.

The kiwi climbed to its highest point against the greenback since January, and will likely hold on to its gains ahead of the official cash rate review on Thursday, which is expected to see the Reserve Bank hike by a quarter-point to 3%.  

“The US housing data was a pretty staggering bounce, though you’ve got to remember it comes from a very low base,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

“I can’t see the kiwi getting any weaker before Thursday – Bollard’s still hiking, and while a 3% yield’s not amazing, it’s better than 0%.”  

The kiwi jumped to 73.42 US cents from 72.95 cents yesterday, and climbed to 68.44 on the trade-weighted index of major trading partners’ currencies from 68.23. It increased to 63.77 yen from 63.55 yen yesterday, and gained to 81.34 Australian cents from 81.23 cents.

It was little changed at 56.51 euro cents from 56.51 cents yesterday, and rose to 47.40 pence from 47.07 pence. Kelleher said the currency may trade between 73.10 US cents and 73.60 cents today, with 73.50 through 74.50 a tough resistance level for it to break.  

Reserve Bank Governor Alan Bollard is expected to boost the OCR 132 basis points over the coming year, according to the Overnight Index Swap curve. Economists predict Bollard will pare back his outlook on the economy, after growth fell short of forecasts, amid the threat of a double-dip recession.  

Australian inflation probably rose to an annual 3.4% in the second quarter, above the Reserve Bank of Australia’s 2% to 3% target band. The RBA, which was the first G-20 nation to embark on tightening monetary policy, has been on hold since May after a record six consecutive hikes. The cash rate is sitting at 4.5%.

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