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NZ dollar follows global equities higher

Friday 16th September 2011

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The New Zealand dollar rose against the greenback, with solid performance by global equity markets helping the currency shrug off some of yesterdays weakness in the wake of the Reserve Bank's dovish monetary policy statement.

The New Zealand dollar recently traded at 82.29 U.S. cents, up from 81.78 yesterday, and rose to 71.75 on the trade-weighted index of major trading partners' currencies from 71.59 previously.

Global equity markets rose for a third day after a commitment by the European Central Bank, the U.S. Federal Reserve and other central banks to provide funding to European banks struggling to raise U.S. dollars.

On Wall Street, the Standard & Poor's 500 Index rose 1.7$ to 1,209.11, while Europe's Stoxx 600 closed 2% higher at 228.69.

The risk-on sentiment lifted investors' appetite for higher yielding, or riskier assets, while so-called safe haven assets fell.

Both the kiwi and Australian dollar gained in the session, while gold fell to $1,788.69 an ounce, its lowest level since Aug. 29, and yields on U.S. 10-year Treasury bills rose to 2.08%.

"The euro has been the big winner on the announcement that the ECB and other would provide U.S. dollar liquidity to the end of the year, which is pretty necessary," said Alex Hill, manager of corporate FX at HiFX in Auckland. "The question that you've got to ask is this in preparation for a Greek default?"

On the crosses, the kiwi dollar recently traded at 79.73 Australian cents, up from 79.71 cents yesterday, and rose to 63.04 Japanese yen from 62.73 yen previously. It fell to 59.23 euro cents from 59.41 cents yesterday, and rose to 52.08 pence from 51.88 pence previously.

The latest tranche of U.S. manufacturing and employment data continued to disappoint, suggesting the world's biggest economy is losing speed and headed for another recession.

The number of Americans filing new claims for state unemployment aid rose unexpectedly to 428,000 in the week, the Philadelphia Fed's business activity index came in at minus 17.5 in September, and the New York Fed's manufacturing index fell to minus 8.82 in September, its lowest level since November.

The blow was somewhat softened by higher-than-expected consumer prices in August, but still puts the focus on the Fed's Forward Open Market Committee meeting next week, when chairman Ben Bernanke is expected to unveil policy measures aimed at jump starting U.S. economic growth.

The kiwi may trade between a range of 81.80 U.S. cents and 82.80 cents, Hill said, with the bias tipped slightly to the downside on the expectation of more bad news out of Europe.


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