NZ dollar holds above 75 US cts amid Middle East tensions

NZ dollar holds above 75 US cts as Middle East tensions linger

By Paul McBeth

March 1 (BusinessDesk) – The New Zealand dollar held above 75 U.S. cents as tensions in the Middle East continued to weigh on the greenback amid concerns over oil supply.

The threat of a civil war in Libya has investors nervous about the global oil supply, and kept pressure on the greenback as investors prefer the relative safety of the yen and Swiss franc. The Dollar Index, a measure of the greenback against a basket of currencies, fell 0.2%, with month-end investment flows exaggerating moves after stocks on Wall Street finished February, with the Standard & Poor’s up 2.9% in the month. The kiwi dollar has found strong support just below 75 U.S. cents after it dropped as much as 200 basis points after last week’s 6.3 magnitude earthquake in Christchurch, which has killed at least 154 people.

“The biggest thing last night was month-end flows, with equities up on the month – the U.S. dollar was sold and (risk-sensitive) currencies were bought again,” said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. “The risk for the kiwi is still towards the downside – on the crosses it’s still looking weak.”

The kiwi fell to 75.17 U.S. cents from 75.38 cents yesterday, and declined to 66.42 on the trade-weighted index of major trading partners’ currencies from 66.60. It was little changed at 61.52 yen from 61.56 yen yesterday, and slipped to 73.88 Australian cents from 74.04 cents. It was down to 54.51 euro cents from 54.72 cents yesterday, and dropped to 46.25 pence from 46.68 pence.

Kelleher said the currency may trade between 74.90 U.S. cents and 75.40 cents today, and will probably continue to stay within a tight range until the Reserve Bank’s monetary policy statement next week. Bank economists are calling for Governor Alan Bollard to cut the official cash rate 50 basis points, and traders are betting he will trim the OCR by 8 basis points in the coming 12 months, down from 50 points of hikes priced in before last week’s earthquake.

Prime Minister John Key said the two Canterbury earthquakes will cost as much as $20 billion as the government stumps up funds on top of the Earthquake Commission and insurers to help rebuild the country’s second-biggest city, and ASB’s Kelleher expects that will attract the attention of the rating agencies at some stage. Standard & Poor’s put New Zealand’s AA- foreign debt rating on negative outlook last year due to the nation’s high level of offshore indebtedness.

The Reserve Bank of Australia will review its target cash rate today, and is expected to keep it on hold at 4.75%.

U.S. data was mixed, with the Chicago PMI hitting a 22-year high, though pending house sales and personal spending were short of expectations.

(BusinessDesk)

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