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The New Zealand dollar gained almost 3c against the plummeting US dollar yesterday, its biggest one-day gain in almost a decade, after the Federal Reserve Bank strove to restore financial market confidence by slashing key interest rates.
While the Fed's move fuelled big gains on Wall St, the effect was muted on the local sharemarket, as listed exporters fell on the prospect of reduced overseas earnings.
Against Tuesday's local close of US70.33c, the kiwi ended yesterday's session at US73.08c, having traded as high as US73.20c.
The US dollar hit a 15-year low against a basket of currencies after the Fed surprised markets with a "thick and wide" half a percentage point cut to both its overnight and discount rates.
The move fuelled a surge on Wall St, where the Dow rose 2.5 per cent. In a familiar pattern, the gains fuelled confidence among carry traders who use the low-yielding Japanese currency as a cheap source of funds to buy higher-yielding currencies such as the kiwi.
ANZ head of markets John Body said the 50 basis point widening of the NZ/US interest rate differential to 3.5 per cent was "a pretty compelling reason to get some more US dollars into kiwi if you're a long-term yield investor".
"The second thing is the general sense that the Fed has shown its hand today. They're going to do what it takes to get the global financial markets functioning effectively.
"It's taken away the nagging suspicion the market had that maybe we were at the end of a global growth cycle and therefore commodity-yield currencies were going to suffer in a global recession scenario. It's more symbolic than anything else in that respect." But while the local market might have been expected to follow Wall St's lead, as the ASX did, climbing 2.3 per cent in late afternoon trading, the NZSX50 managed only a 1.3 per cent gain.
Auckland International Airport rose 26c to $3.30 after the Canada Pension Plan Investment Board outlined three options by which it would offer up to $3.90 a share for a significant minority stake in the company.
However, the dollar's gains yesterday were disappointing for listed exporters.
Fisher & Paykel Healthcare eased 2c to $3.33 and Pumpkin Patch fell 4c to $3.30, partly offsetting gains elsewhere across the top 50.
"Everything that was starting to get some headway seems to have dropped back a bit," said ASB Securities' Stephen Wright.
