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Kiwi heads for first quarterly gain in year as greenback weakens

Thursday 30th September 2010

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The New Zealand dollar is heading for a gain of almost 8% for the third quarter, as the friendless greenback sinks amid speculation the Federal Reserve plans more quantitative easing.

The kiwi is poised for its first quarterly gain in 12 months as stock markets bounced from a small trough earlier this year and investors looked for riskier, or higher-yielding, assets as the prospect of a second recession dimmed.

Fed chairman Ben Bernanke will testify before Senate today and markets will be watching for any hint of a second round of quantitative easing. Yesterday, hedge fund manager Medley Group put out a note flagging the Fed's November meeting for more asset purchases.

"The biggest topic of concern to the markets worldwide is the spectre of quantitative easing from the Fed," said Imre Speizer, market strategist at Westpac.

If the Fed embarks on another round of the asset purchases, it will "pervade the market for a long time" and push the kiwi up against the greenback, he said.

The kiwi dropped to 73.66 US cents from 73.94 cents yesterday, and fell to 66.29 on the trade-weighted index of major trading partners' currencies from 66.49. It declined to 61.62 yen from 61.76 yen yesterday, and fell near a 10-year low to 76.05 Australian cents from 76.20 cents. It slipped to 54.05 euro cents from 54.31 cents yesterday and was little changed at 46.66 pence from 46.68 pence.

Speizer said the currency may trade between 73.20 US cents and 74.20 cents today with building consents and business confidence data hanging over its head. He said the kiwi was getting close to a turning point against the Australian dollar after its 7.7% decline from its year-high in July.

"It's gone a long way, but it's still got fundamentals behind it," he said, speaking about the Australian dollar's strength.

Investors will be looking to see if Ireland gives any guidance on the bail-out for the Allied Irish Bank. Standard & Poor's yesterday warned Ireland's credit rating would be at risk if the rescue exceeds 35 billion euros.

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