Thursday during early deals, the New Zealand dollar jumped to a 4-1/2 -month against the yen as the global stocks extended rally, increasing demand for higher-yielding currencies. The kiwi also climbed to a 2-1/2 -month high against the greenback, the euro and the aussie.
Asian stocks were trading in positive territory today, taking cues from Wall Street, where the major indices ended in the green following the release of an unexpected increase in the U.S. durable goods orders for February and a positive new home sales report.
The kiwi also gained as the International Monetary Fund said yesterday that the New Zealand is in a better position than most advanced countries to face the global storm, given its sound macroeconomic policies.
Staff expects the New Zealand economy to contract by about 2% in 2009, with a gradual recovery over the medium term, the IMF said in its preliminary concluding statement of 2009 Article IV Consultation.
The Australian dollar also strengthened today as both the aussie and kiwi are high-yielding currencies favored by investors for carry trade. The Reserve Bank of New Zealand's current benchmark interest rate stands at 3%, while the Reserve Bank of Australia's is at 3.25%.
In economic news, New Zealand's current-account deficit widened to a record in 2008 as the global recession reduced tourism and as costs for shipping goods overseas rose. The shortfall expanded to NZ$16.07 billion ($9.2 billion) in the 12 months ended December 31, Statistics New Zealand said today in Wellington.
An easing of concerns about the U.S. economy and its banks, plus hopes the U.S. government is getting to grips with toxic assets has fuelled a rise of 18 percent in the MSCI ex Asia index so far this month.
Monetary and fiscal authorities have plenty of ammunition to combat the deepest downturn in decades and the measures already taken will be critical in driving a recovery, the presidents of the Federal Reserve banks of San Francisco and Cleveland said in separate remarks yesterday.
Chinese Finance Minister Xie Xuren said countries should increase their economic stimulus packages if need be to boost market confidence, while a senior IMF official warned the world economy will not start its recovery as expected in 2010 if countries withdraw fiscal stimulus too soon.
New Zealand consumers have benefited from cheaper borrowing costs in recent months as the RBNZ slashed rates to cushion the impact of the global downturn on the export-reliant economy. More mortgage holders are taking advantage of much lower refinancing rates as their mortgage rates come up for reset and are looking to lock rates in for five years, forcing the banks to scramble for interest rate cover.
New Zealand's central bank cut interest rates to an all-time low of 3.0 percent on March 12 to help stimulate the economy, and signaled its easing cycle was close to an end amid expectations that the ailing economy would slowly recover later this year.
Since Bollard spoke on March 12, the market has moved more or less in an upward pointing straight line, driving yields considerably higher and almost entirely removing the prospect of any further rate cuts by the RBNZ.
During Asian deals on Thursday, the New Zealand dollar rose to 56.49 against the Japanese yen. This set the highest point for the kiwi since November 13, 08. On the upside, 61.6 is seen as the next target level for the NZ dollar.
The Bank of Japan said today that corporate service prices in Japan were down 2.6% on year in February, posting an index score of 92.1. Forecasts called for a 2.5% fall on year after the 2.2% annual decline in January. On a monthly basis, corporate service process inched higher by 0.2%.
The NZ currency has gained 21% against the yen and reached a 2-1/2 -month high of 56.37 last Tuesday from an 8-year low of 44.29 hit on February 02.
Although the kiwi-yen pair dropped yesterday following New Zealand's consumer confidence report, which showed that the headline index fell to 96 in the first quarter from 101.3 in the fourth quarter, it bounced back after hitting a 2-day low of 51.14 in early European deals. The kiwi-yen pair closed yesterday's New York session at 55.24.
The New Zealand dollar, which closed yesterday's trading at 0.5663 against the US currency strengthened to a 2 1/2 -month high of 0.5777 during Asian deals on Thursday. If the kiwi-greenback pair gains further, it may find resistance around the 0.604 level.
The US currency tumbled on Treasury Secretary Timothy Geithner's comments about China's ideas for overhauling the global monetary system, saying that he expected the dollar to remain the top reserve currency for a long time.
Geithner was asked at a Council on Foreign Relations event in New York yesterday about People's Bank of China Governor Zhou Xiachuan's call for a new international reserve currency. He said while he had not read Zhou's proposal, he understood it as a plan designed to increase the use of the IMF's special drawing rights. And we're actually quite open to that.
The kiwi-greenback pair advanced after falling to a 6 1/2-year low of 0.4900 on March 04. Since then, the pair has appreciated 15%.
In early trading on Thursday, the New Zealand dollar climbed to a 2-1/2 -month high of 1.2124 against the Aussie. The next upside target level for the kiwi is seen at 1.20. At yesterday's North American session close, the aussie-kiwi pair was quoted at 1.2338.
The Reserve Bank of Australia says the nation's banking system is one of the world's strongest, and is well-positioned to weather the global economic crisis. In its semi-annual Financial Stability Review issued today in Sydney, the RBA notes that that while the global financial system continues to experience significant stress, the Australian Banking system has performed well over recent times.
On the economic front, the Conference Board's Leading Economic Index for Australia registered a decline of 0.6 percent decline in January. The Board's Coincident Index increased 0.6 percent for the period.
The kiwi plunged to a 7-month low of 1.2950 against the aussie on March 03 as the Australia unexpectedly left the nation's benchmark interest rate unchanged at a 45-year low of 3.25%, amid signs the lowest borrowing costs in four decades may keep the economy out of recession.
However, the kiwi rebounded thereafter and it has strengthened 6% thus far.
The New Zealand dollar soared to a 2-1/2 -month high of 2.3497 against the euro during Asian deals on Thursday. This may be compared to yesterday's closing value of 2.3991. If the kiwi strengthens further, 2.262 is seen as the next likely target level.
The euro came under heavy selling pressure after the Munich-based Ifo Institute for Economic Research said yesterday that Germany's business confidence deteriorated to a historical low of 82.1 in March as other economic indicators point to a deepening recession in the economy.
The kiwi has advanced 9% against the euro since reaching a record low of 2.5807 on February 04.
The German GfK consumer confidence report for April, French March consumer confidence index, Italian March business confidence and trade balance data for February, Euro-zone M3 money supply for February are expected to influence trading in the upcoming European session.
Across the Atlantic, the US Bureau of Economic Analysis is due to release its final fourth quarter GDP report at 8:30 am ET. The report is likely to show that the U.S. economy contracted by a 6.6% rate in the quarter.
At the same time, the Labor Department is due to release its customary weekly jobless claims report for the week ended March 21st.
Various Fed officials are scheduled to speak today. Treasury Secretary Timothy Geithner is scheduled to testify on financial regulation reform before House Financial Services Committee in Washington at 10 am ET.
Dallas Federal Reserve Bank President Richard Fisher is due to speak to students as part of the ninth annual Redefining Investment Strategy Education Forum at the University of Dayton at 12 pm ET.
Richmond Federal Reserve Bank President Jeffrey Lacker is scheduled to be the keynote speaker for the 2009 Economic Outlook Conference and luncheon of the Charleston Metro Chamber of Commerce, in Charleston, South Carolina at 12:40 pm ET, while Minneapolis Federal Reserve Bank President Gary Stern would speak at a luncheon of the Economic Club of Minnesota in Minneapolis on Better Late Than Never: Addressing Too-Big-To-Fail at 1 pm ET.
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