NZ dollar nears ten-week high on US plan for banks

NZ dollar nears ten-week high on US plan for banks’ toxic assets

By Paul McBeth

March 24 – The New Zealand dollar neared a ten-week high as the Obama administration’s plan to remove toxic assets from banks’ balance sheets stoked investor optimism, boosting stock markets and encouraging support for high-yielding, or riskier, assets.

U.S. President Barack Obama and Treasury Secretary Timothy Geithner unveiled their Public-Private Investment Program, which aims to finance US$1 trillion worth of illiquid real-estate assets dragging down banks’ balance sheets, using US$75-100 billion from existing rescue packages with around 5% made up from private investment. Financial stocks on Wall Street rallied on the news, with Bank of America climbing 24.9% and Citigroup jumping 19.9% as the Dow Jones Industrial Average surged 6.8%.

“The New Zealand dollar extended its gains last night as global equities surged and investors were cheered by the U.S. Treasury’s new Private-Public investment program,” said Danica Hampton, currency strategist at Bank of New Zealand. “The strong rebound in global equities and improving risk appetite bolstered demand for growth-sensitive currencies.”

The kiwi jumped to 57.16 U.S. cents from 56.55 cents yesterday, and climbed to 55.30 yen from 54.45 yen. It dropped to 81.08 Australian cents from 81.12 cents yesterday, and rose to 41.85 euro cents from 41.42 cents.

The optimism stoked by the plan saw the kiwi dollar push past 57 U.S. cents for the first time since Jan. 13, which has been accompanied by an increase in interest rate swap spreads between the U.S. and New Zealand.

“N.Z.-U.S. three-year swap spreads are currently sitting at 2.15%, well up on the 1.53% low seen on March 9,” Hampton said.

The currency may trade between 56.70 U.S. cents and 57.50 cents as “the vacuum of local data” will see it following equity markets’ lead, said Khoon Goh, senior markets economist at ANZ National Bank.

“It could make a dash for 60 U.S. cents” before “snapping-back” when fourth-quarter data for gross domestic product and the current account deficit are released this week, he said.

ANZ National predicts New Zealand’s economy probably contracted 1.2% for the three months to Dec. 31, and expects the current account deficit to widen to NZ$16.1 billion from NZ$15.5 billion.

(Businesswire)

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