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Kiwi largely unscathed on Christchurch quake after rising on US jobs

Monday 6th September 2010

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The New Zealand dollar pared Friday's gains after Christchurch was hit by a 7.1 magnitude earthquake on the weekend, having advanced on a stronger-than-expected US employment report.  

America shed 54,000 jobs last month, almost half of what was expected, stoking investors' appetite for risk-sensitive currencies such as the kiwi and Australian dollars. The kiwi pared some of its gains as traders reacted to the biggest earthquake in New Zealand in almost 80 years. Prime Minister John Key said quake's damage is estimated to cost some $2 billion, much of which will be covered by insurance.

"Global data last week encouraged investors to trim safe haven positions and risk sensitive currencies like the kiwi and Aussie tended to benefit," said Mike Jones, strategist at Bank of New Zealand.

"We've probably seen the extent of kiwi weakness as a result of the earthquake - ultimately it could be kiwi-positive with relatively large fiscal injection and inflationary pressure could increase."

The kiwi climbed to 71.83 US cents from 71.56 cents on Friday in New York, and edged up to 66.63 on the trade-weighted index of major trading partners' currencies from 66.57. It was unchanged at 60.44 yen and fell to 78.44 Australian cents from 78.65 cents last week. The kiwi was little changed at 55.70 euro cents from 55.73 cents last week, and rose to 46.53 pence from 46.44 pence.

Jones said the currency may trade between 71 US cents and 72.20 cents today and will continue to follow global sentiment and equity markets.

The Earthquake Commission's Natural Disaster Fund hold about two-thirds of its $6 billion of assets in New Zealand government bonds, and investors will looking to see how the earthquake might impact on the bond market.

Across the Tasman, a Labor-Green coalition looks likely to form the next government with an announcement tipped for this week. If the Green Party holds sway over the next government, the Australian dollar will probably come under pressure with a beefed up mining tax likely to be part of the party's negotiations.

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