NZ dollar eases from three-month high

After reaching a three-month high against the greenback early yesterday afternoon, the New Zealand dollar faded overnight as the United States currency advanced broadly.

By 8am today the kiwi was buying US58.76c, having peaked around US59.75c about 1.30pm yesterday.

The US dollar rose as stocks in Europe and on Wall Street fell on fading optimism about a global economic recovery, prompting investors to buy the greenback as a safe haven.

ANZ bank today said that "without any doubt NZD trading over the last 24 hours represented the pinnacle optimism and a picture of hope".

"Reality arrived in the form of European sellers who established longer term positions and capped the top."

The New Zealand Institute of Economic Research's Quarterly Survey of Business Opinion due out at 10am today is expected to highlight that the economy remained weak, although it may show the deterioration was slowing, ANZ said.

The NZ dollar was at 0.4385 euro at 8am, similar to the level at 5pm yesterday, while it slipped to 59.43 yen from 59.90.

The kiwi was also down against the Australian dollar to A82.35c at the local open from A82.65c. The trade weighted index was 58.50 at 8am from 58.78 at 5pm.

Local currency strategists said yesterday that the New Zealand dollar's surge will continue as long as equity markets rally,

But the consensus is that persistent economic challenges will force the kiwi back down again before long.

The New Zealand dollar, which hit a multi-year low of US49.49c on March 3, had gained more than 20 per cent in little more than a month, yesterday spiking as high as US59.80c, its loftiest point since early January.

"It's very much a case of improved risk sentiment over the past few weeks continuing to provide support," said Deutsche Bank currency strategist John Horner.

"That's resulting in a better tone to equity markets but also, perhaps more importantly, the moves towards quantitative easing in the major economies has seen commodities very well supported as well.

"The investment theme is that in a world where central banks are heading towards printing money you have to own real assets such as commodities and also commodity currencies such as the New Zealand dollar."

Yesterday, Asian equity markets enjoyed solid gains after US stocks posted the longest stretch of weekly gains since 2007.

Data such as last week's March US jobs number were fuelling hopes the worst of the global recession is over.

"Equity markets are buying into the 'worst is over' story for the global economy, and commodity prices look to have bottomed. The yield differentials, too, continue to move in the NZ dollar's favour," said the ANZ.

Despite a string of deep Reserve Bank of New Zealand interest rate cuts, the kiwi dollar still has an interest-rate premium to most other currencies.

Westpac currency strategists said either global sentiment bottomed in early March, in which case the New Zealand dollar did likewise at US49c, "or we are experiencing a multi-week bear market rally, which will soon expire", allowing the NZ dollar to again fall below US49c.

"We prefer the latter view, because there are too many potentially adverse global events brewing to subscribe to the recovery story just yet."

Horner's view was broadly similar: "This move has strong momentum and could continue for some weeks yet, maybe there is some chance though that we fall back in the second half of the year and retest the lows."

NZPA/ADAM BENNETT