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NZ dollar gains as oil prices recover, Asian stock rally

Thursday 21st January 2016

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The New Zealand dollar recovered yesterday's losses as oil prices rose from a 13-year low, triggering a rally in equity markets and spurring demand for commodity-linked currencies. 

The kiwi rose to 64.36 US cents at 5pm in Wellington from 64.19 cents at 8am, and 63.77 cents yesterday. The trade-weighted index gained to 71.22 from 70.65 yesterday. 

Stocks on Wall Street rallied late in the session on a bounce in oil prices. That upbeat sentiment continued into the Asian trading session, with China's Shanghai Composite index up 0.5 percent in afternoon trading, Japan's Nikkei 225 index gaining 0.2 percent, and Australia's S&P/ASX 200 index rising 0.9 percent. 

"Equities had a convincing bounce from the lows of the Dow (Jones Industrial Average), which saw US stocks recover a large proportion of their losses and that's led to risk being put back on and has filtered through to the Asian markets," said Stuart Ive, senior foreign exchange dealer at OMF in Wellington. "Commodity currencies - the kiwi and the Aussie - are holding their own." 

Ive said the kiwi recovered almost all of yesterday's drop when weaker than expected inflation stoked speculation the Reserve Bank will have to cut interest rates this year, though it's still on a downward trend. 

Local data today showed manufacturing activity rose to a 14-month high in December and a separate survey reported an improvement in consumer sentiment this month. 

New Zealand's two-year swap rate rose six basis points to 2.64 percent at 5pm in Wellington, and 10-year swaps increased four basis points to 3.45 percent. 

Investors will be watching US oil inventories to gauge whether the global glut is set to persist and keep prices low, and the European Central Bank's policy review on Thursday in Brussels. 

Ive said ECB president Mario Draghi isn't expected to announce a change in policy, but investors will be looking for the central bank's view on the deflationary impact of cheap oil. The kiwi increased to 59.10 euro cents from 58.25 cents yesterday. It rose to 45.39 British pence from 45.07 pence. 

The kiwi gained to 93.10 Australian cents from 92.91 cents yesterday, and rose to 4.2329 Chinese yuan from 4.2225 yuan. It increased to 75.34 yen from 74.60 yen yesterday.

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