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NZ dollar holds above 82 cents, may gain on attractive yields

Monday 29th October 2012

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The New Zealand dollar held above 82 US cents and may gain as the nation's relatively attractive yields draw demand for the currency.

The kiwi dollar traded at 82.23 US cents from 82.21 cents in New York on Friday. The trade-weighted index was at 73.38 from 73.39.

The local currency rose to the highest in more than three weeks last week after Reserve Bank governor Graeme Wheeler quashed talk of an interest rate cut and said he wouldn't contemplate intervening in currency markets. New Zealand 10-year bonds are yielding about 3.52 percent while comparable 10-year Treasury bonds yield 1.75 percent, a spread of 177 basis points. The official cash rate was kept at 2.5 percent last week, versus a Federal Reserve target near zero.

"All up, rising NZ-US yield differentials, coupled with the recent brightening in the global backdrop, reinforces our view the NZD/USD is still a buy-on-dips currency," said Mike Jones, currency strategist at Bank of New Zealand.

With little local data until the ANZ Commodity Price Index on Friday, the kiwi will likely take its lead from offshore this week, he said.

Corporate earnings out of the US will be closely watched as a proxy for growth in the world's biggest economy, after a raft of disappointing results.

The kiwi traded at 79.22 Australian cents from 79.31 cents and fell to 63.45 euro cents from 63.55 cents. It traded at 65.45 yen from 64.46 yen and was recently at 51 British pence from 51.08 pence.

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