Opinion: Kiwi hits 59 USc again, but needs new boost to get over 60 USc

By Danica Hampton NZD/USD rebounded strongly over the Easter weekend. After falling to nearly 0.5750 on Thursday, the local currency climbed steadily and opened above 0.5900 this morning. Sentiment towards the global economy has improved markedly over the past few days. Investor confidence was bolstered by news that China is planning a new economic stimulus package aimed at boosting consumption. Global equities have been given a boost from earnings guidance from Wells Fargo (who said it expects a record US$3b profit in Q1), fuelling hopes that the US banks' upcoming earnings reports may also positively surprise. Recovering risk appetite encouraged investors to trim "˜safe-haven' bets in the USD in favour of currencies more sensitive to economic growth like AUD and NZD. Thin trading conditions and market illiquidity exacerbated the currency movements. AUD/USD broke through stops in the 0.7200 region and was quickly squeezed up above 0.7300 and NZD/USD was dragged above 0.5900. February's retail sales are released today and these look likely to tell of further weakness in the sector. The ex-auto number is the one to watch (as car sales have been extremely volatile lately and have the potential to distort the headline reading). Ex-auto we're looking for a modest 0.2%m/m gain (vs. market at 0.1%), which would be consistent with a continued contraction in underlying volumes. For today, the backdrop of recovering risk appetite and firmer US equities should keep the NZD/USD underpinned on dips towards 0.5840-0.5850. However, headwinds are expected ahead of April 6 high of 0.5980. While there are glimmers of hopes on the global horizon, we think it's premature to think the world is suddenly a better place. On balance, we think NZD/USD will struggle to maintain gains above 0.6000 without evidence the NZ economy is starting to find its feet. The USD weakened against most major currencies over the Easter weekend amid hopes the world economy was recovering and reduced "˜safe-haven' demand. Investor optimism was supported by news that China is planning a new economic stimulus package aimed at boosting consumption (more details will be announced on April 15). This stimulus package would be in addition to the US$585b fiscal stimulus package already announced. Recent economic data suggests China's economy fared better than expected during the first quarter, but Premier Wen warns the economy still faces big challenges. Investors are hopeful that the worldwide efforts will help shore up the financial sector and stimulate global economic growth going forward. This optimism encouraged investors to trim "˜safe-haven' bets in the USD in favour of currencies more sensitive to economic growth like EUR, AUD and NZD. After falling below 1.3100 on Friday, EUR/USD has stormed higher over the past 24 hours climbing above 1.3350. Worries about slowing Chinese demand for USD denominated assets may have also taken a toll on the USD. Data released over the weekend from the PBOC showed that China was a net seller of US government bonds in January and February, before resuming purchases in March. China's foreign reserves grew just US$7.7b in Q1, the slowest pace in nearly eight years (in the same quarter of 2008 reserves grew US$153.9b). US equities put in a mixed performance last night. Investors were unsettled by media reports suggesting the US Treasury has directed General Motors to lay the ground work for a bankruptcy filing (GM will be forced to file if it cannot complete a plan to exchange debt for equity). However, strong demand for financial stocks (ahead of this week's quarterly earnings reports "“ Wells Fargo beat expectations last week saying it expects a record US$3b Q1 profit) provided a bit of support. The fortunes of currencies this week will depend greatly on how global sentiment unfolds. Should investor sentiment remain buoyant, improving risk appetite will likely continue to weigh on the USD and boost demand for JPY crosses like EUR/JPY. However, investor sentiment is fragile and we are mindful that should equity markets start to slide, then the recent USD weakness could be quickly reversed. In this regard, investors will be keenly watching how global equity markets react to the US banks corporate earnings releases later in the week and China's GDP on Thursday.   ____________ * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.