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New Zealand dollar gains as US stocks rally

Thursday 3rd June 2010

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The New Zealand dollar advanced after prices of the nation’s commodities rose and US stocks rebounded as better home sales data and signs bank credit is improving in the world’s biggest economy.

New Zealand commodity prices rose to a record last month in world markets, according to the ANZ Commodity Price Index, which recorded its 14th straight monthly gain in May, and was paced by a further advance in dairy products. With the kiwi dollar having receded to around 68 US cents from about 76 cents eight months ago, the New Zealand dollar index also charted a new record.

In the US, the Standard & Poor’s 500 Index climbed 2.6%, bouncing back from the previous session’s 1.7% decline, after the National Association of Realtors’ index of pending home resales rose a higher-than-expected 6%, while Bank of America and Wells Fargo indicated credit markets were improving.

“Lofty commodity prices are one of the reasons we expect the NZD to remain well supported in coming months,” said Mike Jones, currency strategist at Bank of New Zealand, in a note. “A cautious improvement in risk appetite supported the NZD overnight” after a “buoyant night in U.S. equity markets.”

The kiwi dollar climbed to 68.12 U.S. cents from 67.49 cents late yesterday and climbed to 62.79 yen from 61.78 yen. It rose to 55.61 euro pence from 55.19 and gained to 46.51 against the pound from 45.86 pence.The trade-weighted index of the New Zealand dollar rose to 66.35 from 65.82.

Jones said the New Zealand dollar may trade in a range of 67.10 US cents to toward 69 cents in coming sessions, given “recovering equity market sentiment and supportive commodity prices.”

The ANZ index rose 2.5% to 283.6 last month, following a revised 5.4% gain in April, according to the report released yesterday. Dairy prices rose 4% to be up by nearly two thirds from a year earlier. Prices of skins climbed 12% and kiwifruit rose 11%.

In New Zealand dollar terms, the index rose 2.9% to 216.5, also a record, meaning farmers will get more of the benefit of stronger world prices than they’ve received when the kiwi dollar has been strong against the greenback.

The ANZ commodities data comes after the results of Fonterra Cooperative Group’s latest online auction, which showed the average price of whole milk powder fell 3.4% this month to US$3,790 a tonne, still more than double its trough of July last year.

With little local economic data this week, the kiwi dollar is likely to take its lead from developments in offshore markets, Jones said.

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