NZ dollar, little changed, may gain as investor optimism stokes appetite for risk-sensitive assets

Thursday 8th October 2015

The New Zealand dollar was little changed as improving investor sentiment supported demand for risk-sensitive assets, helping push up Asian equities and supporting commodity-linked currencies.

The kiwi slipped from a 6 1/2-week high, trading at 65.87 US cents at 5pm in Wellington from 66.05 cents at 8am and almost unchanged from 65.88 cents yesterday. The trade-weighted index traded at 71.04 from 71.17 yesterday.

Stocks across Asia were mixed, with China's Shanghai Composite Index up 3.8 percent in afternoon trading after a week-long holiday, Japan's Nikkei 225 index slipped 0.6 percent and Australia's S&P/ASX 200 index increased 0.6 percent. Calmer market volatility has encouraged investors to start buying riskier assets again after they tumbled through September. That improved sentiment has seen commodity prices rise in recent weeks, including another gain at this week's GlobalDairyTrade auction, supporting currencies linked to raw material prices such as the kiwi, Australian and Canadian dollars.

"We've seen big squeezes higher in equities, in commodities and across risk currencies, especially Asian currencies," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. "Back in September, there was all this bearishness on Asian currencies and the Aussie and kiwi, and because we've stabilised, we've had this squeeze higher."

BNZ's Shareef said the kiwi may push up to 67 US cents, at which point "medium-term sellers would come through" with the longer horizon still pointing to a lower currency.

New Zealand's two-year swap rate edged up one basis point to 2.7 percent at 5pm in Wellington and the 10-year swap increased two basis points to 3.52 percent.

The kiwi traded at 4.1819 Chinese yuan from 4.1854 yuan yesterday as markets in China re-opened after the Golden Week holiday.

The local currency increased to 91.83 Australian cents from 91.65 cents yesterday, and was unchanged at 78.96 yen. It increased to 58.52 euro cents from 58.38 cents, and decreased to 43.02 British pence from 43.16 pence yesterday.

BusinessDesk.co.nz

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