New Zealand Markets Recover As Risk Appetite Returns

Trading patterns in the Kiwi dollar continue to serve as a barometer of mercurial global risk appetite, as New Zealand?s currency has been struggling to recover since reverberations of subprime shockwaves spread across the globe.

RBNZ Steps in to Ease Money Market Crunch
The Reserve Bank said today it would boost liquidity in local money markets by accepting bank bills as collateral. It said starting from tomorrow it would accept New Zealand bank bills in its overnight reverse repurchase facility (ORRF), at a cost of the official cash rate, currently 8.25 percent, plus a margin of 100 basis points (1 percentage point).

Kiwi Government to Take Action to Prevent Further Collapses in Finance Sector

The Government will consider interim changes to tighten finance company regulations after the latest failure in the sector. Commerce Minister Lianne Dalziel has resisted a kneejerk response to finance company failures but now has asked officials to look for “common threads”. The recent failures have left “mum and dad” investors bewildered and angry.

Source: The New Zealand Herald

Auckland Airport Forecasts 7% Rise in Annual Earnings

Auckland International Airport Ltd., subject of a NZD 2.6 billion ($1.8 billion) takeover offer, said full-year earnings growth may accelerate to 7 percent as a drop in the New Zealand dollar lures travelers to the country. The currency, known as the kiwi, this month had its steepest decline since 1985 after reaching a post-float high 81.10 U.S. cents on July 24. That makes airfares to New Zealand less expensive, helping swell passenger numbers through the nation’s busiest airport.
Source: Bloomberg

Market Activity
Currency Market - NZD:
Trading patterns in the Kiwi dollar continue to serve as a barometer of mercurial global risk appetite, as New Zealand?s currency has been struggling to recover since reverberations of subprime shockwaves spread across the globe. As US equity markets regained their footing for the fifth session, demand for high-yield resurged on the assumption that liquidity injections by central banks may have ameliorated credit market turbulence. In an unprecedented move, the Reserve Bank of New Zealand announced that pressures on local interbank markets made it imperative for the central bank to turn to its last resort Overnight Reserve Repurchase Facility. During the Wellington session, the NZDUSD pair leapt to close at 0.7120 USD, as steady financial markets lured investors to capitalize on the 8.25 percent interest rate, the second-highest among sovereign states with Aaa rating. The recovery above the key psychological level of 0.7000 USD is made more significant by the fact that the Kiwi has traded above 0.7000 USD for only 6 percent of the time since it floated in 1985. NZDJPY, the pair of choice for carry trades, rose from 79.09 yen yesterday to 82.56 yen by 5 pm in Wellington, and was trading above the 82.60 level during the New York session.
Kiwi currency crosses gained across-the-board as suggested by the 2.6 percent rally by the trade weighted index, which has raked in 7 percent gains above the prior-year level.
[B]NZDUSD (Daily Chart)

Prepared by DailyFX Research Team
Source: Bloomberg[/B]
Equity Market - NZSX-50 Index:
New Zealand?s share market extended its winning streak for the fourth consecutive day on Thursday, a welcome sign of recovery after credit market jitters caused losses for six straight sessions till Friday. The benchmark NZSX-50 index added to its 3 percent gain during the course of the week to close up 1.37 percent, or 55.85 points, to 4089.12. Gains outnumbered losses 74 to 36. The winners for the day were blue-chip stocks such as Fletcher Building, up 4.17 percent, and Telecom, up 1.17 percent. Export-related stocks responded to the Kiwi?s dollar recent slide - Fisher & Paykel Appliances rose 2.82 percent, but Fisher & Paykel Healthcare slid 0.59 percent after the unprecedented currency exchange rate eroded annual profit forecast. Auckland Airport lost 0.94 percent after announcement of a sour 10.8 percent decline in annual net profit despite a 5.3 percent rise in revenue.
[B]NZSX-50 Index (Daily Chart)

[/B]Prepared by DailyFX Research Team
Source: Bloomberg
Fixed-Income Market - 10-year Government Bond Yields:
Demand for New Zealand?s government debt declined and the price for benchmark 10-year note dropped to 97.086, a breather from Tuesday?s recent multi-period high of 98.520. Yield on the 10-year government bond rose to 6.389 percent after risk aversion hit a plateau as global financial markets showed signs of defiance in spite of the subprime debacle. New Zealand?s equity and currency markets advanced after the RBNZ followed the lead of its global counterparts and announced measures to prevent exacerbation of the liquidity squeeze in domestic money markets.
[B]10-year Government Bond Yields (Daily Chart)

[/B]Prepared by DailyFX Research Team
Source: Bloomberg