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Kiwi gains on milk and inflation forecasts

Tuesday 24th May 2011

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The New Zealand dollar was buoyed today by a forecast boost to dairy farmers' payout and a predicted increase in inflation.

At 8am it was worth US79.06 cents and rose to US79.54c at 5pm.

Dairy cooperative Fonterra this morning lifted its forecast payout 10c to a new record of $8 to $8.10, before retentions, for 2010/11.

The dollar bounced off lows on Fonterra's news but the biggest mover was the release of the Reserve Bank's survey of inflation expectations in the afternoon, said ANZ chief foreign exchange dealer Murray Hindley.

That saw the dollar rose from about US79c to around US79.6c.

The quarterly survey of expectations showed business managers forecast annual inflation to average 3.12% over the coming year, compared with 2.9% in the last survey in February. Two-year inflation expectations were for a rate of 3.0% from 2.64%.

The inflation comments saw another round of buying and the kiwi was up against a number of crosses, Hindley said.

Against the aussie, the kiwi was up to A75.39c at 5pm from A74.74c yesterday.

It was worth 0.5655 euro from 0.5613, up against the British pound to 49.35p from 48.75p and up to 65.05 Japanese yen from 64.79.

The trade weighted index rose to 69.34 from 68.91.

In overseas exchanges the US dollar held firm near a seven-week high against a basket of currencies and the euro remained on the defensive on Tuesday amid worries that the euro zone's debt crisis could spread to heavyweights like Spain.

The euro ticked up 0.15% in Asia to US$1.4064 after having fallen to a two-month low of $1.3968 on Monday.

As worries about the euro zone's debt problems spread, other European currencies also came under pressure. The pound slipped to an eight-week low of US$1.6055 before erasing gains.

The Australian dollar also gained 0.3 percent to US$1.0540 , after having hit a one-month low around US$1.0480.

The dollar slipped a tad against the yen to 81.82 yen, though some traders said the dollar's broad rally could help the pair to test the March 19 high of 82.23 yen.



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