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NZ dollar rises above 86 US cents as investors chase yield

Wednesday 23rd April 2014

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The New Zealand dollar rose above 86 US cents overnight, as investors seeking higher yields anticipate a rise in the nation's benchmark interest rate tomorrow.

The kiwi touched a week high of 86.20 US cents early this morning and was trading at 85.97 cents at 8am in Wellington from 85.78 cents at 5pm yesterday. The trade-weighted index advanced to 79.90 from 79.76 yesterday.

Traders have priced in a 97 percent chance for a rate hike by New Zealand's Reserve Bank tomorrow, according to the overnight index swap curve. The nation's central bank last month became the first to raise rates this cycle and is expected to increase the benchmark rate by another 25 basis points to 3 percent tomorrow to head off the threat of future inflation.

"A rate hike, as universally expected by the market, could still initiate a rally, as New Zealand further solidifies its upward interest rate track, against a global backdrop of struggling economies and near zero interest rates," Peter Cavanaugh, client advisor at Bancorp Treasury Services, said in a note.

In New Zealand today, March data is released on migration at 10:45am and credit card spending at 3pm.

Traders will be eyeing China's initial manufacturing PMI report for April to gauge the pace of a slowdown in Asia's largest economy. The HSBC flash report, scheduled for release at 1:45pm New Zealand time, is expected to edge up from 48 last month but remain below the 50 level which signifies contraction.

The New Zealand dollar was little changed at 91.75 Australian cents from 91.72 cents yesterday ahead of Australian inflation data scheduled for release at 1:30pm New Zealand time.

The kiwi touched a week high of 62.41 euro cents overnight and was trading at 62.27 cents at 8am from 62.18 cents yesterday ahead of the release of Eurozone flash PMI data today.

The local currency was little changed at 51.09 British pence from 51.07 pence yesterday ahead of the release of the Bank of England minutes from its last meeting, which may show policy makers are moving closer to raising borrowing costs.

The kiwi touched a week high of 88.42 yen overnight and was trading at 88.22 yen at 8am from 88.05 yen yesterday.

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