NZ dollar rises as weak US data spurs QE3 talk

Photo / Dean Purcell

The New Zealand dollar rose against the greenback on bets that weaker US factory and home sales data will force Federal Reserve Chairman Ben Bernanke to unveil a third round of quantitative easing (QE3).

The New Zealand dollar recently traded at 83.58 US cents, up from 83.30 cents yesterday, and rose to 71.57 on the trade-weighted index of major trading partners' currencies from 71.31 previously.

Global equities, somewhat perversely, rallied strongly after factory output in the US Atlantic region dropped to a two year low of -10 in August from +1 in July, and new home sales data showed activity was still stalled. On Wall Street, the Standard & Poor's 500 Index rose 2.9 per cent to 1,156.18, while in Europe the Stoxx 600 rose 0.8 per cent to 226.63.

"Across the board we've seen equity markets rally particularly in the US, with the kiwi being favoured in that environment," said Dan Bell, senior currency strategist at HiFX in Auckland. "In general it was risk-on amid expectations that Bernanke will launch further monetary policy easing when he speaks at Jackson Hole on Friday."

Markets are betting that the Fed will be forced to resort to a third round of asset purchases to jolt the ailing US economy out of its downward spiral with very few other measures at hand, which would provide a major shot in the arm for equities, Bell said.

However he cautioned that the "market is certainly setting itself up to be disappointed".

On the crosses, the New Zealand dollar recently traded at 79.39 Australian cents, up from 79.29 cents yesterday, and rose to 64.06 Japanese yen from 63.82 yen previously. It gained to 57.81 euro cents from 57.58 cents yesterday, and climbed to 50.58 pence from 50.34 pence previously.

On the local data front, traders will be waiting for the release of merchandise trade figures for July, which is expected show a $150 million deficit in the month, although the annual figure is seen coming in at a $1.06 billion surplus, according to a Reuters poll.

The New Zealand dollar may trade between a range of 82.80 US cents and 84 cents, Bell said, with the bias towards the upside, though the move higher will be capped at the top end of the range.