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Kiwi rises as US dollar eases

Thursday 24th February 2011

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The New Zealand dollar rose today as the US dollar weakened but traders remain wary of a possible rate cut by the Reserve Bank of New Zealand (RBNZ).

The NZ dollar was at US74.75c at 5pm, up from US74.46c at 8am but still down from US74.86c at 5pm yesterday.

Expectations are growing that the RBNZ will cut the official cash rate (OCR) next month, following Tuesday's devastating Christchurch earthquake, although some economists question the value of such a move.

In an early afternoon note today, Deutsche Bank chief economist Darren Gibbs said the markets had moved to fully price a cut of 25 basis points in the OCR at the Reserve Bank's next scheduled announcement on March 10.

"However, we see little point in such a small reduction. Therefore, we expect the RBNZ will lower the OCR by 50bps to 2.5%, indicating that the reduction is to provide greater assurance that the forecast recovery remains on track despite the tragic events in Christchurch."

Dealers said investors are watching market operations with the central bank for a possible cut and the currency spiked higher around 9am when there was no evidence of one.

The NZ dollar then rose as both the Australian dollar and euro rose today but it failed to keep pace with the Australian dollar.

The Australian dollar was boosted by strong business investment data. The US dollar was broadly weaker in Asia on fears about social unrest in the oil-producing Middle East. London Brent crude rose to US$113 a barrel for the first time since September 2008.

The NZ dollar dropped from A74.67c at 5pm yesterday to A74.21c by 5pm today.

It fell to four-month lows against the European and Japanese currencies, dropping from 0.5465 euro at 5pm to a low around 0.5405 early today, and was 0.5428 at 5pm.

The trade weighted index was at 66.22 at 5pm from 66.57 at the same time yesterday.



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