Improving global economic sentiment continues to raise demand for kiwi assets, boosting the NZ currency vs the pound

The kiwi advanced over three and a half cents (1.6%) against the pound yesterday as investors showed renewed enthusiasm for risky assets.

• Rising commodity-prices and stronger-than-expected corporate earnings in the US have contributed to continued demand for higher-yielding currencies.
  
• In addition, investors are now pricing in that New Zealand’s central bank is likely to drop its monetary- easing bias at its meeting next week as economic data point to improvement.
  
• Although there has been speculation that the RBNZ has expressed concern that the strength of the kiwi is frustrating economic recovery, strong data has investors questioning whether the central bank can keep interest rates on hold until the middle of next year.
  
• In trading this morning, the New Zealand dollar has capped its gains, with the price currently hovering just above 2.17.

Aussie resumes its climb against the pound, but has capped gains this morning

The aussie dollar continued its upward trend yesterday, pushing on nearly one percent against the pound following bullish words from an RBA official.

• The Australian dollar rose as a Reserve Bank of Australia official said a move to “more normal” interest rates was appropriate, indicating that the yield gap may widen further.
  
• Philip Lowe, assistant governor of the RBA, also mentioned at the conference in Sydney that it was “appropriate” to remove monetary stimulus as the economy improves boosting demand for higher-yielding assets.
  
• The Australian currency also traded strongly during the Asian session with demand high as both the Nikkei and Shanghai Composite indices traded strongly.
  
• The RBA minutes from their most recent policy meeting, released early this morning, had a hawkish tone, which reinforced views of a steep interest rate hike next month.
  
• However, the aussie, which has broadly strengthened in response, is currently trading just marginally higher against the pound, with the price currently around 1.7650.

Euro pushes higher but finds strong resistence at $1.50

The single currency resumed its climb against the dollar in trading yesterday, supported by rising confidence in the global recovery, closing the day up 0.4%.

• The euro hovered just below the psychologically important 1.50 level as the US dollar remained under selling pressure on expectations that US interest rates will remain pinned at record lows well into 2010.
  
• The single currency also found support as some investors speculated finance ministers from the 16-nation region meeting in Luxembourg would focus on the currency’s strength.
  
• The dollar came under further pressure as the continued confidence over the prospects of a global economic recovery were reaffirmed as the Dow Jones opened up over 10,000, keeping haven demand for the dollar in check.
  
• Late in the afternoon, the Fed added to the greenback’s woes after stating that it has been testing its reverse repurchase agreement tool but is not about to use it, suggesting that US monetary policy is not set to tighten just yet.

Pound reached over $1.64 yesterday, but has slipped half a cent in trading this morning

Having traded in the red during the morning session, the pound rebounded back over $1.64, climbing for the fifth consecutive day and reaching a near one-month high of $1.6422.

• The pound initially fell against the dollar, relinquishing last week’s gains after the Sunday Times said Bank of England policy maker Adam Posen may support an extension of the central bank’s asset-purchase programme.
  
• Posen added that he was “not worried about overshooting inflation right now,” which many analysts have said will become an issue as the economy begins to grow.
  
• Last week, following the words of Mr Fisher, the market moved to discount a scenario where it was more likely that asset purchases would be paused. However, these comments suggest that the question of QE is still a finely balanced decision.
  
• Sterling was able to reverse its losses in the afternoon, however, after the US markets opened strongly, with Dow Jones edging over 10,000, supporting risk appetite in the market.
  
• The dollar has advanced in trading this morning with markets awaiting Producer Price Index data from the US, released today at 13:30BST.

Having held steady in trading yesterday, the pound has slipped back this morning as equity markets stumble

Sterling suffered early losses against the euro yesterday after a BoE member hinted that the QE programme should be extended, but the pound recovered to close the day on level footing.

• Adam Posen stated that the central bank should continue its quantitative easing programme as the financial system has yet to show signs of a sustained recovery.
  
• He added that he was unconcerned about the possibility of further monetary stimulus risking a rise in inflation.
  
• His comments appeared to eclipse positive house price data from property website Rightmove, which showed that asking prices for homes in England and Wales were up on an annual basis for the first time in more than a year in October.
  
• Posen’s dovish remarks contrast with those of fellow MPC member, Paul Fisher, who last week suggested that the BoE may be considering drawing its QE programme to a close.
  
• However, the UK currency rallied strongly in the afternoon, buoyed by surging equity markets, which took their lead from positive US corporate earnings.