KEY POINTS:
The New Zealand dollar's rebound this week on rising investor appetite for riskier assets may well be short-lived, with currency watchers saying the pending United States economic stimulus package and revised finance industry bailout may fall short of expectations.
The US Senate was to vote on President Barack
Obama's US$827 billion ($1.55 trillion) economic stimulus plan early today while Wall St is anxiously awaiting a speech by Treasury Secretary Timothy Geithner outlining the Obama Administration's plan to overhaul the government's US$700 billion financial bailout programme.
BNZ currency strategist Danica Hampton said investors appeared to have shrugged off the delay in the US bank bailout plan and instead seemed to be focusing on the positive impact the new measures should have on the troubled financial sector.
That in turn has seen increased demand for risk assets including the New Zealand dollar which surged higher last week and yesterday hit a two-week high of US54.47c. The kiwi went on to lose more than 1 per cent during the session to close at US53.14c.
Speaking on the US factors that had dragged the kiwi higher in recent sessions, Westpac markets strategist Imre Speizer he didn't expect them to last more than a couple of weeks at most, but probably much less than that.
"Nothing structurally has changed in New Zealand. We still have expectations of worse economic news to come. All that's really changed in the last week is heightened expectations of the detail that's in the US stimulus and bank rescue packages.
"There has been a lot of conjecture and I've got to think there has been so much expectation built into the price that it may be a disappointment trade when Geithner speaks tomorrow."
Royal Bank of Canada currency strategist Sue Trinh agreed.
"Our view is that it's probably going to be a buy the rumour sell the fact situation whereby this move will ultimately be faded.
"We've been here before in many episodes over the last year or so where the market's got very excited about potential stimulus packages only to get all disappointed once the actual package gets passed. We think it's the same sort of situation here."
Trinh, who believes the kiwi may sink as low as US38c by the middle of the year, said the kiwi fell sharply off its highs yesterday as it followed the euro lower on news Russia is seeking to reschedule a huge amount of private sector debt.
Speizer said the kiwi was also being sold off by Japanese names as part of a heavier than usual annual period of offshore asset repatriation by corporates ahead of the Japanese financial year end.
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