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Kiwi climbs to 10-month high

Monday 4th October 2010

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The New Zealand dollar rose to a 10-month high after the Chicago and New York Federal Reserve presidents said more action was needed to bring down America's unemployment rate, raising the prospect of more quantitative easing and weighing on the greenback. 

New York Fed's William Dudley flagged more asset purchases in a speech, saying inflation and the outlook for jobs growth was "unacceptable" and further action was probably warranted.

The Chicago Fed's Charles Evans said he favours more quantitative easing, though unlike Dudley, he doesn't have a vote on the Federal Open Market Committee. The Fed flagged inflation as a key barometer for more asset purchases at its meeting last month, and data on Friday showed America's core personal consumption expenditure inflation steady at 1.4% in August.

"The kiwi went higher after we got confirmation from the Fed that it's thinking about QE - until now, it's mainly been market speculation," said Mike Jones, strategist at Bank of New Zealand.

"The kiwi's looking expensive for the first time since last November - it looks overstretched based on fundamentals."

The kiwi climbed to 74.40 US cents from 73.67 cents on Friday in New York, and gained to 66.62 on the trade-weighted index of major trading partners' currencies from 66.29. It rose to 61.91 yen from 61.45 yen last week, and increased to 76.52 Australian cents from 76.16 cents. It was little changed at 53.90 euro cents from 53.95 cents last week, and advanced to 47.13 pence from 46.82 pence.

Jones said the currency may trade between73.90 US cents and 74.90 cents today, with the ANZ Commodity Price Index likely to give traders some hint on the underlying strength of the kiwi.

Stocks on Wall Street gained on Friday after data showed the US manufacturing sector is still in expansion mode, while Chinese data helped underpin optimism about the strength of the world's second-biggest economy.

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