Dollar rises as gain in business confidence adds to positive signals for economy

The New Zealand dollar gained after business confidence rose for the first time in six months, adding to speculation there's enough positive signs in the economy to deter the central bank from cutting interest rates again next month.

The kiwi rose to 63.65 US cents at 5pm in Wellington, from 63.06 cents yesterday. The trade-weighted index advanced to 69.42 from 68.97 yesterday.

New Zealand businesses grew less gloomy in September, with a net 19 percent of firms pessimistic about the general outlook for the economy over the coming year, compared with a net 29 percent of pessimists in August, according to the ANZ Business Outlook survey. Last week, Fonterra Cooperative Group raised its forecast farmgate milk price to $4.60/kgMS, from an earlier forecast of $3.85/kgMS, and Westland Milk lifted its forecast payout today, citing "some signs of increasing demand and price recovery." Dairy prices have risen for the past three GlobalDairyTrade auctions.

"We don't think the Reserve Bank wants to cut in October - it wants to let things settle down," said Tim Kelleher, head of institutional sales at ASB Bank. "The only negative data of late was the GDP which was slightly below market expectations."

The Reserve Bank next reviews interest rates on Oct. 29, having cut the official cash rate a quarter point to 2.75 percent on Sept. 10 while indicating it has another reduction of that size up its sleeve, dependent on the flow of data. Its next full monetary policy statement is on Dec. 10.

Overnight, Federal Reserve chair Janet Yellen is scheduled to give a speech - one of nine Fed officials to speak this week, giving the US central bank ample space to give any signals on the timing of rate hikes. Also overnight, is the end of the month and quarter, which typically sees currency flows as institutional investors tidy up their portfolios.

Kelleher said net US dollar buying is expected overnight heading into the quarter-end, and net selling of the kiwi and Australian dollars. Traders still see the prospect of the kiwi dollar being lower by year end, which would require a further deterioration in commodity prices and a decline in dairy futures, reviving the prospect of a rate cut by the RBNZ as the Fed moves to raise rates.

The kiwi rose to 56.58 euro cents at 5pm in Wellington from 56.02 cents yesterday and gained to 42.02 British pence from 41.58 pence. It gained to 76.34 yen from 75.43 yen and was stronger at 90.85 Australian cents from 90.64 cents. The kiwi rose to 4.0489 yuan from 4.0129 yuan.

The two-year swap rate rose about 3 basis points to 2.69 percent and 10-year swaps rose 3 basis points to 3.48 percent.

(BusinessDesk)