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NZ dollar up 2.1 percent vs greenback this week

Friday 12th July 2013

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The New Zealand dollar is heading for a 2.1 percent weekly gain against the greenback after the local currency jumped to a three-week high yesterday when investors reassessed whether the US Federal Reserve will start slowing down its money printing programme.

The kiwi rose as high as 79.68 US cents this week, trading at 78.68 cents at 5pm in Wellington from 78.33 cents at 8am and 79.52 cents yesterday. It started the week at 77.05 cents. The trade-weighted index fell to 74.57 at 5pm from 75.10 yesterday, and is almost unchanged from 74.59 at the start of the week.

A BusinessDesk survey of 10 traders and strategists on Monday predicted the local currency may trade between 75 US cents and 79 cents this week, with a lower bias. Eight expected the kiwi to end the week lower and two picked a rise.

Traders are digesting Fed chairman Ben Bernanke's comments on Wednesday in Massachusetts that the US economy still needs "highly accommodative monetary policy for the foreseeable future". That initially sparked a sell-off in the greenback as investors dialled back their expectations the Fed will start unwinding its US$85 billion asset purchase programme as early as September, though that's been tempered in the latest trading session.

"There are going to be hiccups in the tapering story, that's what we got yesterday," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "Tapering is coming, and that's going to be negative for the kiwi."

Because investors are now warier about pricing in the wind-down in quantitative easing, the kiwi may rise to as much as 82 US cents in the next couple of weeks, but after that it will resume its downtrend, Speizer said.

Traders have pared back their bets on rate hikes by New Zealand's Reserve Bank, pricing in 47 basis points of increases over the coming 12 months according to the Overnight Index Swap curve, compared to 69 points at the start of the week.

In Northern Hemisphere trading, investors will be watching for comments on the future path of monetary stimulus from Fed officials John Williams, James Bullard and Charles Plosser.

The New Zealand dollar fell to 77.89 yen from 78.50 yen yesterday, and was little changed at 85.68 Australian cents from 85.64 cents. The kiwi dollar declined to 60.11 euro cents from 60.55 cents yesterday and gained to 51.87 British pence from 52.48 pence.

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