Wave of optimism on markets pushes NZ dollar above US68c

The latest upswing in see-sawing global sentiment has forced the New Zealand dollar higher again as investors, heartened by equity market gains, sold down the greenback in favour of risk currencies.

The kiwi was at US68.48c by 5pm yesterday, well up from Friday's local close of US67.17c, but down on the US68.65c peak it hit later that night.

The kiwi also rose against the aussie, approaching the A82c level.

BNZ currency strategist Danica Hampton said global sentiment had improved on Friday night with some surprisingly positive US housing data, and Federal Reserve chairman Ben Bernanke's comments that "prospects for a return to growth in the near term appear good" for both the US and the global economy.

That saw equity markets bounce strongly. The S&P 500 rose 1.9 per cent to a freshhigh for 2009 and China's Shanghai Index rebounded 7 per cent from its midweeklows.

Hampton said: "The important question near-term is whether or not investors think the global backdrop has improved sufficiently to see NZ dollar/US dollar break into fresh ranges. There are plenty of risks out there - many equity markets are still overstretched ... and US interest rates have risen sharply."

She expected the kiwi would strike "headwinds" around its year-to-date high of US68.80c. However if the global backdrop continued to improve and the US dollar continued to weaken, the kiwi could push up towards US69.50c.

Westpac senior markets strategist Imre Speizer said the kiwi's gains against the aussie had defied expectations. "Relative fundamentals, such as interest rates, are being ignored for now."

The kiwi closed yesterday at A81.65c, 64.89 and €0.4777. The trade weighted index rose to 63.58 from 62.67 on Friday.