NZ dollar rises as US spending, Fed view lifts risk appetite

NZ dollar rises as US consumer spending, Fed view stokes risk appetite

By Paul McBeth

Dec. 15 (BusinessDesk) – The New Zealand dollar rose as investors’ appetite for riskier, or higher-yielding, assets improved amid stronger consumer spending in the U.S. and the Federal Reserve maintained its policy position.

Stocks on Wall Street and in Europe extended gains as American consumers ramped up their spending in the face of a sagging recovery for the world’s biggest economy. The Federal Open Market Committee kept interest rates near zero and maintained its asset-purchase programme at US$600 billion as economic growth failed to provide a spark to the labour market. A strong government bond auction in Spain helped stoke investors’ risk appetite after the debt-laden nation issued about 2.5 billion euros of short-term bills at yields that were about 100 basis points higher than last month’s sale.

“Risk appetite is still improving, and that was helped by strong U.S. retail sales numbers, and when the Fed statement came out, it didn’t make any significant changes,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand. “The New Zealand dollar is still being driven by what’s happening offshore, and it’s being dragged along with the Aussie,” he said referring to the Australian dollar colloquially.

The kiwi rose to 75.38 U.S. cents from 75.09 cents yesterday, and increased to 67.63 on the trade-weighted index of major trading partners’ currencies from 67.43. It gained to 62.82 yen from 62.63 yen yesterday, and slipped to 75.29 Australian cents from 75.38 cents. It advanced to 56.17 euro cents from 55.97 cents yesterday, and climbed to 47.71 pence from 47.31 pence.

Goh said the currency may trade between 74.85 U.S. cents and 75.55 cents today with offshore news the main driver until third-quarter current account and gross domestic product data next week.

The kiwi hit a decade-low 75.13 Australian cents yesterday, but clawed back some of those losses ahead of today’s consumer confidence data in Australia. Goh said the next major level is 75 cents, and if that breaks, “everyone will be looking towards the low of 73.24 that it made in 2000.”

The Treasury’s half-year economic update painted a gloomy picture for the government’s books over the next five years, with the cash deficit not forecast to breakeven until 2015 after a cumulative deficit of $44.4 billion. With the Debt Management Office only expected to raise a net $31.8 billion, policy-makers will have to find other ways to cut costs and find cash.

“Clearly things are weak, and on the face of that, the currency should be lower,” Goh said.

(BusinessDesk)

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