Dollar hits fresh high

Dollar hits fresh high

By Tony Field

The New Zealand dollar has risen to a nine-month high.

It is trading at just over 69 US cents. That is the highest it has been since last June.

The Kiwi has been a star performer on global markets this week, rising from 66.87 cents on Sunday.

The rise in the Kiwi is not so much an endorsement of the New Zealand economy, but more of a reflection of the higher interest rates that are on offer in New Zealand for investors with cash.

The US dollar slumped following a speech by Federal Reserve (Fed) chair Janet Yellen yesterday. She told the Economic Club in New York that the signs for the US economy are mixed and she will proceed with caution when it comes to future interest rate hikes.

The move in the currency could therefore be seen as a bit of a surprise. That is because Ms Yellen's speech reinforced comments she had already made to the markets.

The Fed raised interest rates in the US in December for the first time since the Global Financial Crisis. At the time it indicated that it was contemplating hiking rates four times this year. But more recently Ms Yellen indicated the Fed is now contemplating only two hikes this year. Yesterday's speech reinforced this message.

The expectation is that there will be two interest rate hikes in the US this year, lifting the Fed's key lending rate to just under 1 percent (it sits at just under half a percent now).

Global shares have rallied in the wake of the Fed's comments.

Britain's major share index rose this morning to finish at its highest closing level for the year. The FTSE 100 gained 1.6 percent, to close at 6,203 points.

Germany's DAX gained 1.6 percent as well, while France's CAC 40 rose 1.748 percent.

The US market opened around a third of a percent higher, adding to gains yesterday.

Weak interest rates encourage people to put money into investments like shares which offer higher dividend yields.

The Kiwi has also risen against the Australian dollar and is trading at just over 90 cents.

A higher dollar is not great news for exporters, because it erodes the value of earnings generated in US dollars.

The latest Westpac Regional Economic Confidence Survey found dairy regions are the most pessimistic, with Taranaki, Southland and Manawatu-Whanganui topping the list.

The most optimistic areas are the Bay of Plenty, Gisborne and Hawke's Bay. They are doing well from horticulture and tourism.