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NZ dollar gains as investors assess the possibility of western military action in Syria

Thursday 29th August 2013

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The New Zealand dollar rose after investors increased their appetite for riskier assets as western powers weighed the possibility of military action in Syria.

The kiwi advanced to 77.90 US cents at 8am in Wellington, from 77.58 cents at the 5pm market close yesterday. The trade-weighted index rose to 73.64 from 73.33 yesterday.

Investors are eyeing the likelihood of intervention in Syria as the UK plans to seek authorization for Western military action at the UN Security Council which Russia called premature and seemed certain to block. UN head Ban Ki-moon has said its inspectors in Syria need more time to establish the facts of the chemical attack.

"A little bit of risk has come back onto the table which has steadied the kiwi against the US dollar," said Stuart Ive, senior client advisor foreign exchange and derivatives at OM Financial. "All eyes are on the Syrian situation. We are going to be treading water for the remaining time until we find out what is going on with Syria."

In the interim, the New Zealand dollar will probably trade between 77.70 US cents and 78.20 cents, Ive said.

Underpinning the New Zealand dollar is news that officials found no signs of botulism-causing bacteria in Fonterra Cooperative Group whey protein concentrate, rather it was a non-toxic variety, Ive said. Fonterra's commitment to lift its payout to farmers is also helping support the currency, he said.

An ANZ Business Confidence survey scheduled for release at 1pm is likely to have only a minor effect on the currency as global risk dominates, he said.

Also today, New Zealand's Reserve Bank releases its monthly update on its foreign currency transactions at 3pm today.

Meanwhile, data out last night which showed that fewer Americans are signing contracts for previously used homes points to signs that higher interest rates are weakening the US housing market which has been one of the backstops to the US recovery. Ive said.

The New Zealand dollar rose to 76.12 yen at 8am in Wellington from 75.32 yen yesterday after Bank of Japan deputy governor Kikuo Iwata said the bank will continue its quantitative easing until inflation stabilises at 2 percent.

The local currency edged up to 87.14 Australian cents from 87.09 cents. The kiwi gained to 58.39 euro cents from 57.98 cents yesterday and increased to 50.15 British pence from 49.96 pence yesterday.

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