Dairy figures help dollar

06-09-2010 | Alan Williams

Gains in Fonterra's online dairy auction prices and brighter economic data in the United States and Europe combined to boost the New Zealand dollar.

The currency does look over extended, but is likely to range trade round current levels until year end before starting to track down towards fair value, said BNZ currency strategist Mike Jones.

The kiwi dollar was at US$0.7138 late on Friday morning, up from 0.7069 a week earlier. Improved US manufacturing data and a higher growth forecast from the European Central Bank boosted investor risk appetite, for the moment displacing earlier talk of double dip recession and deflation.

Jones said sentiment reflected market acceptance that economies were growing, more slowly than before, but not moving back into recession. This sentiment was subject to non-farm payroll numbers in the US overnight on Friday, always a nervy time for the markets these days.

New Zealand economic growth is better than those major established economies, but has slowed and the consensus now is that the Reserve Bank may not now raise interest rates until perhaps December.

Going into the middle of next year, the BNZ expects the kiwi to be moving gradually towards the fair value area of US$0.61; probably not that low, but likely to a level of 0.65.

On the other major cross, Jones said the dollar has peaked against sterling and euro, despite rising against them over the last week.

From stg0.4637 on Friday, he said the dollar should be back towards or even just below the stg0.40 level. Against the euro, he is looking at a cross of about E0.51 or 0.52 by mid-2011.

The kiwi is at relatively low levels against the yen, at Y60.15 on Friday. This is a volatile cross and could trade anywhere across the Y58 to Y68 range over the balance of the year, with no clear trend.

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