RTTNews - Friday, the Australian and New Zealand dollars strengthened against their key counterparts as a jump in Asian stocks boosted demand for higher-yielding currencies.
Benchmark interest rates are 2.5 percent in New Zealand and 3 percent in Australia, compared with 0.1 percent in Japan and as low as zero percent in the U.S., attracting investors to the South Pacific nations' higher-yielding assets. The risk in such trades is that currency-market moves will erase profits.
Asian stocks were modestly higher after today Japanese industrial production jumped at its fastest pace in 56 years, in the latest sign recession was easing in major economies. It was evidence that manufacturers in the world's second largest economy are starting to heal amid the country's steepest recession since World War II.
Australia's S&P/ASX 200 Index gained 1.7 percent to 3,818.10 at the close in Sydney. It rose 1.5 percent for the week, bringing its total gain for the month to 1 percent. New Zealand's NZX 50 index advanced 1.6 percent to 2,764.17 in Wellington. Over the week the index gained 0.1 percent. It has risen 0.9 percent for the month.
The Australian and New Zealand dollars gained this week against the greenback as prices of commodities, which account for more than half the nations' exports, climbed by the most this month since 1974.
The currencies also strengthened after Japan's industrial output rose 5.2 percent in April, the most in 56 years and faster than the 3.3 percent economists forecast. In South Korea, industrial production increased for a fourth straight month in April and India's economy grew 5.8 percent in the first quarter.
Bank lending in Australia increased in April for a fourth month adding to signs that record low interest rates and government handouts are spurring demand. Loans provided by banks and other finance companies climbed 0.1 percent from March, the Reserve Bank of Australia said in Sydney today.
During early deals on Friday, the Australian dollar climbed to near an 8-month high of 0.7944 against the U.S. currency. The next upside target for the Australian dollar is seen at the 0.80 level. At yesterday's close, the aussie-greenback pair was quoted at 0.7847.
The U.S. dollar weakened against most major currencies after South Korea said its national pension fund plans to hold fewer U.S. Treasuries relative to other assets, renewing concerns that record U.S. debt sales will undermine the country's creditworthiness.
The Australian currency tumbled to a 5 1/2 -year low of 0.6012 against the greenback in October 2008. The aussie-greenback pair then gained 17% and reached a 3-month high of 0.7271 on January 07, 2009. Although the aussie lost 14% thereafter it bounced back after hitting a 2 1/2 -month low of 0.6251 on February 02. Since then, the aussie-greenback pair has advanced more than 21%.
After a brief slide, the Aussie strengthened against the Japanese yen in early deals on Friday. The pair moved from 75.70 to 76.95 at 3:10 am ET. This set the highest point for the Australian currency since October 06, 2008. On the upside, 80 level is seen as the next target for the aussie. The aussie-yen pair was worth 75.99 at Thursday's close.
Australia's dollar is the second-biggest gainer against the U.S. and Japanese currencies this month as the S&P 500 stock index added 3.9 percent since April 30 for a third straight monthly advance. Asian stocks are poised for the longest streak of monthly gains since the credit crisis began in 2007.
The aussie-yen pair slumped to a new multi-year low of 55.12 in October 2008. Thereafter, the pair showed volatile trading until breaking the long-term resistance level of 68.3 in March 2009. Thus far this year, the Australian currency has strengthened 18%.
During early deals on Friday, the Aussie climbed to a 9-day high of 1.7637 against the euro. This may be compared to yesterday's close of 1.7781. If the Aussie edges up further, it may test resistance around the 1.755 level.
The Aussie has appreciated 2% against the euro since reaching an 8-day low of 1.8013 earlier this week.
The Aussie, which closed yesterday's trading at 0.8741 against the Canadian dollar rose to a 2-dayhigh of 0.8793 during early deals on Friday. The next likely resistance for the aussie-loonie pair is seen at the 0.881 level.
In early trading on Friday, the New Zealand dollar jumped to new multi-month highs of 0.6343 against the U.S. currency and 61.42 against the yen. If the kiwi advances further, it may likely target 0.64 against the greenback and 62 against the yen. The kiwi-greenback and the kiwi-yen pairs were worth 0.6233 and 60.36, respectively at Thursday's close.
New Zealand's dollar is this month's best performer against the 16 most-traded currencies after Standard & Poor's raised the outlook on the country's sovereign debt rating to stable.
New Zealand's Finance Minister Bill English yesterday unveiled a budget that deferred tax cuts to avert the threat of a credit- rating downgrade that would have driven borrowing costs higher and delayed a recovery from the worst recession in three decades.
Extending last year's 25% slide, the kiwi plummeted to a 6 1/2 -year low of 0.49 against the greenback on March 04, 2009. But the kiwi reversed direction thereafter on the back of strong equities and it has surged up 23% thus far.
The NZ dollar has been in an upward channel against the yen after falling to more than an 8-year low of 44.29 on February 02. Since then, the kiwi-yen pair has appreciated 28%.
Against the euro, the New Zealand currency soared to a new multi-month high of 2.2091 during early deals on Friday. The next upside target level for the kiwi is seen at 2.125. At yesterday's close, the euro-kiwi pair was quoted at 2.2371.
Germany's Federal Statistical Office announced today that the retail sales in real terms increased 0.5% month-on-month in April, compared with a 0.4% drop in the preceding month. The April retail sales came in line with economists' expectations.
Year-on-year, retail sales decreased 0.8% year-over-year in April, marking the same pace as in the previous month. Economists were looking for a decline of 0.3%. A year earlier, retail sales were up 0.1%.
In early deals on Friday, the New Zealand dollar climbed to 1.2528 against the Aussie. On the upside, 1.251 is seen as the next likely target for the kiwi. The aussie-kiwi pair closed Thursday's North American session at 1.2603.
Looking ahead, Euro area flash consumer price inflation data as well as unemployment details are due at 5.00am ET. Annual inflation is forecast to ease to 0.2% in May from 0.6%, while the jobless rate is forecast to rise to 9.1% in April from 8.9% last month.
In the meantime, a preliminary report for Italian consumer prices is due. Annual inflation is seen at 0.9%, down from 1.2% in April.
From U.S., the Bureau of Economic Analysis is due to release its preliminary first quarter GDP report at 8:30 am ET. The report is likely to show that the U.S. economy contracted at a 5.5% rate in the quarter.
The results of the Institute of Supply Management-Chicago's business survey for May are scheduled to be released at 9:45 am ET. Economists expect the business barometer index based on the survey to come in at 42.
At 10:00 am ET, the Reuters/University of Michigan's final report on the consumer sentiment index for May is scheduled to be released. Consumer confidence is expected to rise in the month, with economists forecasting an increase in the index to 68 from the mid-month reading of 67.9.
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