NZ dollar follows global rally on upbeat IMF growth forecast

BUSINESSDESK: The New Zealand dollar held on to its gains in local trading after following a worldwide rally in higher-yielding, or riskier, assets after the International Monetary Fund upgraded its forecast for global growth, and as traders prepare for tomorrow’s local inflation figures.

The kiwi was little changed at 82.16 US cents at 5pm from 82.15 cents at 8am, and up from 81.62 cents yesterday.

The trade weighted index advanced to 73.27 from 72.81 yesterday.

Stock markets across Asia gained in afternoon trading with Hong Kong’s Hang Seng index up 1.2% and Japan’s Nikkei 225 Index rising 2%.

Sentiment was bolstered by the IMF raising its forecast for global economic growth 0.2 percentage points to 3.5% in 2012.

The IMF said New Zealand’s gross domestic product will expand 2.3%.

“There’s a sea of green in equities,” said Tim Kelleher, head of institutional FX sales NZ, at ASB Institutional.

“The longer the kiwi goes sideways, the bigger the move you’re going to get” when it breaks out of its range, he said.

Demand for short-term Spanish government debt at auction yesterday stoked optimism the European region may avoid another round of contagion from its sovereign debt crisis, though Thursday’s sale of 10-year bonds will be closely monitored.

The upbeat sentiment comes ahead of tomorrow’s first-quarter consumer prices index figures, which are expected to show a 0.6% quarterly pace of inflation.

Tepid inflationary pressures have been cited as a reason for the Reserve Bank to keep the official cash rate near its record-low 2.5%.

Traders are betting governor Alan Bollard and his successor will hike the rate just 6 basis points over the coming 12 months, according to the Overnight Index Swap curve.

Mr Kelleher said he was surprised at the lack of impact on the kiwi from yesterday’s weak Fonterra Cooperative Group dairy auction, where the average price sank 9.9% below the 10-year average.

Sentiment for commodity-linked currencies was boosted by the inclusion of South African government debt in Citigroup’s World Government Bond Index, which pushed the yield on 2026 dated debt down to three-year lows.

The kiwi sank to 6.3809 rand at 5pm from 6.4642 rand yesterday.

It was little changed at 79.02 Australian cents from 78.97 cents yesterday, and gained to 66.86 yen from 65.62 yen yesterday.

It climbed to 62.69 euro cents from 62.23 cents yesterday, and advanced to 51.58 pence from 51.41 pence.