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Kiwi rises above US74c in overnight trading

Wednesday 23rd March 2011

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The New Zealand dollar was one of the strongest performing currencies in the world overnight, rising to almost US74.50c in an ongoing recovery from a seven-month low last week.

The NZ dollar was at US74.12c at 8am from US73.75c at 5pm yesterday. It rose as high as US74.46c in overnight trading, which is its highest since March 12.

"As uncertainty and fear over Japan's nuclear crisis has receded, investors' appetite for risk has recovered, renewing support for 'growth-sensitive' currencies like the NZ dollar," BNZ said.

The NZ dollar lost more than US2c in the last week in the wake of Japan's catastrophic earthquake and tsunami, followed by a nuclear crisis in the world's third-largest economy. It reached a seven-month low around US71.15c on Thursday morning.

Investors are waiting for December quarter current account data today followed by December quarter gross domestic product (GDP) data tomorrow.

The latter could produce headlines of a technical recession but the economy is expected to recover when the rebuilding of Canterbury gets under way and as tourism is boosted by the rugby world cup.

BNZ said the annual current account deficit should slim even further for the year to December, to about 2.3% to 2.4% of GDP.

"It might be even less, if the initially-estimated $1.7 billion reinsurance credit from the September 4 earthquake is revised upward. Looking into the March quarter, a bigger credit from February's earthquake may well see the current account move into surplus for the first time since 1973," BNZ said.

Global currency markets were relatively subdued overnight. The euro retreated against the US dollar on worries about Europe's most indebted countries, Associated Press reported.

But the dollar fell against the British pound and the Japanese yen. Against a group of six major currencies, the dollar fell to its lowest level since December 2009.

The US dollar is considered a safe haven asset by investors; with the belief that the nuclear crisis in Japan has eased and that central banks overseas will raise interest rates ahead of the Federal Reserve, investors are looking to other currencies.

The US recovery is gaining traction, two top Federal Reserve officials said on Tuesday, though they differed on the risks of inflation in the US economy.

Cleveland Fed President Sandra Pianalto said she expected the US recovery to continue at a moderate pace, with rising commodity and energy prices only temporarily putting pressure on broader consumer prices.

"The recovery seems to have established a firmer footing. I am seeing clearer signs of a virtuous cycle of growth," Pianalto said in a speech at the University of Akron.

Dallas Fed President Richard Fisher, speaking in Frankfurt, Germany, said the US recovery was gathering momentum and needs no further Fed support.

"The Fed has done enough, if not too much, and we should do no more. In my opinion no further accommodation is necessary after June," Fisher said.

The NZ dollar was at 0.5217 euro at 8am from 0.5185 euro at 5pm yesterday and at 59.98 yen from 59.73 yen.

Against the Australian dollar, the NZ dollar was at A73.26c from A73.31c at 5pm yesterday.

The trade weighted index was consequently higher, at 64.86 from 64.61.



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