NZ dollar rebounds after sentiment turns rosy in US equities markets

The kiwi was trading at 60.18 US cents at 5pm. Photo / 123RF

The New Zealand dollar recovered much of its losses earlier this week after sentiment in equities markets improved, partly due to the hopes that an existing antiviral treatment will prove effective in treating patients suffering from the Covid-19 virus.

The kiwi was trading at 60.18 US cents at 5pm in Wellington from 59.55 at the same time yesterday and appears headed to end the end the week about half a cent below last week's close in New York at 60.78.

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The trade-weighted index was at 68.36 from 67.90.

"It started with a rally into the close in US equities markets," said Mark Johnson, an adviser at OMF.

Gilead, a US biotechnology company that researches, develops and commercialises drugs, has reported its antiviral drug - which failed clinical trials as a potential Ebola cure - had resulted in rapid recoveries in people with fever and respiratory symptoms from Covid-19.

Medical experts have warned people not to place too much store in the news until after the drug has gone through clinical trials.

"I feel most of this market move is based on hype," Johnson said, adding that a number of pharmaceutical companies are trying to develop vaccines and other treatments of the disease.

The broad measure of US stocks, the S&P 500 Index, gained 0.6 per cent in its last session and the futures were up more than 3 per cent heading into the NZ markets closing.

The equities rally came against a backdrop of grim news, including that China's GDP fell 6.8 per cent in the March quarter, its worst quarter since China started publishing such figures in 1992 and the first time China's economy has shrunk since 1976 when that country's 10-year "cultural revolution" ended.

China's industrial production fell 1.1 per cent in March from a year earlier and its retail sales were down 19 per cent.

Johnson said the International Monetary Fund's warning that its forecast for global growth has gone from 3.3 per cent growth to a contraction of at least 3 per cent for 2020 "was pretty dire and a hell of a turn around."

Equities markets are failing to realise the severity of the downturn the world is facing and how messy the recover will be, he said.

"A bear market never finishes on one single massive sell-off without coming back to test the lows," he said. "I'm a little bit perplexed about the way the equities markets have rebounded – that's why I feel it's on hype rather than actual evidence."

The New Zealand dollar was trading at 94.52 Australian cents from 94.83 cents at 5pm yesterday. It was at 48.14 British pence from 47.72, at 55.35 euro cents from 54.73, at 64.83 yen from 64.29 and at 4.2591 Chinese yuan from 4.2174.

The bid price on the two-year swap rate closed at 0.3300 per cent from 0.3725 yesterday, while 10-year swaps were at 0.8950 per cent from 0.8925.