Dollar gains as US equities surge on housing data

Tuesday 5th May 2009

The New Zealand dollar gained as stocks on Wall Street surged on better-than-expected housing and construction data. The currency’s gains may be capped this week with data expected to show rising unemployment in New Zealand.

The Standard & Poor’s 500 index rose above 900 for the first time in four months, as pending home sales gained 3.2% and construction spending increased for the first time in seven months.

Bank of America and Citigroup led the charge as the looming results of the so-called stress tests of America’s 19 largest banks failed to deter support for the lenders that have hoarded US$1.1 trillion of cash.

Yesterday’s weaker-than-expected wage data in New Zealand could indicate unemployment will be worse than forecast when the data’s announced on Thursday.

The kiwi was “dragged kicking up the slope” as support for the greenback waned, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. Wage data yesterday “was worse-than-expected” and could see first-quarter unemployment exceed the consensus forecast 5.3%, he said.

The New Zealand dollar rose to 57.55 US cents from 57.13 cents yesterday, and gained to 56.91 yen from 56.82 yen. It slipped to 77.75 Australian cents from 78.07 cents yesterday, and dropped to 42.91 euro cents from 43.07 cents.

Kelleher said the currency may trade between 57.25 US cents and 58 cents as investors pursue higher-yield, or riskier, assets and eschew safe-havens like the greenback and yen.

The Reserve Bank of Australia will review its target cash rate today, and is expected to keep rates on hold at 3%. Kelleher doesn’t expect the New Zealand-Australian dollar cross to move much if rates stay steady, with most investors already prepared for a pause. The Australian dollar rose to 73.98 US cents from 73.16 cents yesterday.

Sentiment around New Zealand’s economy may be boosted by an improvement in Fonterra Group Cooperative’s online auction tomorrow, which should show another increase in dairy prices, Kelleher said. The average price of whole milk powder rose 3.5% to US$2,235 per metric ton in last month’s auction on the GlobalDairyTrade website.

Businesswire.co.nz

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