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Kiwi climbs as China prepares for yuan appreciation

Monday 21st June 2010

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The New Zealand dollar climbed above 71 US cents to a new month-high after reports Chinese authorities will remove the yuan’s peg to the greenback and let the currency appreciate.  

The People’s Bank of China said it will allow a more flexible yuan as it resumes reforming its exchange rate regime after the recovery in the world’s third-biggest economy became “more solid with the enhanced economic stability.”

The central bank said emphasis will reintroduce its trading band of plus or minus 0.5% though it ruled out a significant appreciation in the currency. The kiwi dollar rose to its highest level since May 13 on the news, with the prospect of increased purchasing power in China likely to stoke demand for local exports.  

“The kiwi surged this morning purely on the Chinese news,” said Imre Speizer, markets strategist at Westpac. “Whether it will rally more than what it’s done already it harder to predict – I suspect it might get a little bit more when Asia comes on.”  

The kiwi jumped to 71.33 US cents from 70.28 cents on Friday in New York and advanced to 68.21 on the trade-weighted index of major trading partners’ currencies from 67.59. It climbed to 64.51 yen from 63.64 yen on Friday, and slipped to 80.83 Australian cents from 81.02 cents. It rose to 57.23 euro cents from 56.77 cents last week, and increased 47.97 pence from 47.41 pence.  

Speizer said the currency may trade between 70.60 US cents and 71.30 cents today with this morning’s early surge likely to pare back once China announces its fixed rate for the currency.  

China’s announcement comes a week before the leaders of the Group of 20 nations meet to discuss how to put the global economy on a more sustainable footing. The peg has been a thorn of contention with the US in recent months, with the world’s biggest economy putting pressure on the Chinese to let the yuan appreciate.  

The pound will be under close scrutiny over the next couple of days with the British Chancellor of the Exchequer George Osborne gearing up to deliver his first budget tomorrow in the U.K. in what’s expected to outline England’s deepest spending cuts since the 1970s.

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