NZ dollar at 30-month high vs slumping greenback

Photo / Dean Purcell

The New Zealand dollar rose to its highest level in 30 months against the greenback, which slumped broadly in response to the United States Federal Reserve's decision to buy US$600 billion of US Treasuries over the next eight months, hoping to spur growth in a disappointingly slow US economy.

The kiwi, also boosted by employment data yesterday that suggested this economy was performing better than expected, peaked around US79.75c early today. It eased to US79.57c by 8am, well up from the US78.49c at 5pm yesterday.

The NZ dollar also rose against other currencies, pushing to its highest level in more than seven weeks against the Australian dollar around A78.60c, from A78.06c at 5pm. By 8am the kiwi had fallen back to A78.36c.

At 8am the NZ dollar was also around its highest level in about seven weeks at 0.5599 euro from 0.5552 at 5pm, while against the Japanese currency the kiwi rose from 63.42 yen at 5pm to hit a three-month high near 64.40 yen before easing to 64.19 yen at 8am. The trade weighted index rose to 69.52 at 8am from 68.92 at 5pm.

BNZ markets strategist Mike Jones said that for the second day running the NZ dollar had been the strongest performing currency.

Yesterday's employment data had "lit a rocket under the currency," he said.

Overnight, the NZ dollar continued its path northward against the US dollar as surging risk appetite bolstered demand for growth-sensitive currencies such as the kiwi and aussie.

Stock markets and commodity prices soared as investors bathed in the afterglow of the Fed's quantitative easing policy.

The Fed's commitment to open-ended purchases of Treasuries, implying low funding costs, also brings into focus an expected increased use of the US dollar in carry trades in which the US dollar is used to fund purchases in commodities, emerging markets and higher-yielding currencies.

"What you achieve with quantitative easing is that you signal to investors not to buy US government securities, take the money elsewhere, which in turn will weaken the (US) dollar and spur economic growth," said Axel Merk, president and portfolio manager at Merk Investments in Palo Alto, California.

- NZPA