The New Zealand dollar continued its acceleration to hit a
new record against the US dollar yesterday as overseas
investors' appetite for risk increased, including their
exposure to higher-yielding currencies.
To a backdrop of calmer stock markets around most of the
world, excepting several Asian bourses, the kiwi hit a new
26-year post-float high of US85.69c yesterday.
Investors have been jittery in recent weeks with the
escalation of the sovereign debt turmoil in Europe and also
flailing talks over a proposed increase to the $US14.29
trillion ($NZ16.69 trillion) US federal debt ceiling by
August 2, which without an increase could see the United
States default on its debt payments.
However, negotiations on lifting the ceiling are now being
seen by investors to be progressing favourably.
The US dollar cut losses against the euro and rose against
the yen after President Barack Obama earlier this week gave
his support to a bipartisan proposal for a new
deficit-reduction plan aimed at averting a US debt default.
Mr Obama said the ambitious budget plan brought forward by a
"gang of six" group of senators could provide new ideas for
breaking the impasse in Congress over raising the federal
government's credit limit by the August 2 deadline.
Earlier in the week, fleeing investors from Europe
underpinned a return to safe-haven gold, which continuously
over 11 days pushed the global spot price beyond $US1600 for
the first time, to trade at $US1605. It had since eased back
to $US1584.
On Tuesday, the NZX reversed 11 days of decline, with the NZX
50 index gaining 0.2%, but on low turnover of just $67
million.
Craigs Investment Partner broker Chris Timms said so long as
good news kept flowing out of the United States it was likely
investors would continue to take on riskier currencies and in
the short term the kiwi could be driven higher.
Strong global commodity prices were driving growth and also
inflation in New Zealand, which in turn could see interest
rates hiked by the Reserve Bank, in turn attracting more
investors.
"[However] it's still a fragile and volatile market out
there, and all this is dependent on what is happening in the
United States," Mr Timms cautioned.
Forsyth Barr broker Peter Young said US stocks climbed
overnight, after IBM's profit topped estimates and President
Barack Obama endorsed a plan to cut the federal deficit.
The Standard and Poors 500 Index and Dow Jones gained by
almost 1.7% apiece, while the Nasdaq was up 2.2%, he said.
"Stock in the United Kingdom advanced for the first time in
four days following positive economic reports from the US
regarding new housing, and as corporate earnings continued to
track ahead of analysts' expectations," he said.
The US markets had gained momentum late in the day after
President Barack Obama suggested progress was being made
towards a $3.75 trillion deficit reduction deal centred
around entitlement reform.
"Stocks are starting to bounce at least for the time being,
with people wagering that there will be a resolution on the
debt ceiling," said Wayne Kaufman, chief market analyst at
John Thomas Financial, New York.
- Additional reporting, Reuters
simon.hartley@odt.co.nz
A name, residential address, and (preferably residential) telephone number is required from readers who comment on ODT Online. These details will not be visible to site visitors.