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NZ dollar advances to week-high as kiwi favoured over Aussie

Wednesday 6th November 2013

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The New Zealand dollar touched a week high on strong demand for the local currency after the Reserve Bank of Australia said that nation's currency was too high.

The kiwi rose as high as 83.34 US cents early this morning and was at 83.00 cents at 8am in Wellington from 82.63 cents at the 5pm market close yesterday. The local currency touched a two-week high of 87.66 Australian cents overnight and was at 87.44 cents this morning from 87.13 cents yesterday.

Investors shunned the Aussie after Australia's central bank yesterday said that nation's currency is "uncomfortably high" and a lower exchange rate is needed to achieve balanced growth in the economy. That has increased demand for the kiwi ahead of an employment report today which is expected to point to a reviving local economy.

"The market had been quite short kiwi versus Australian dollar and we saw quite a bit of stopping out of positions overnight which would lead naturally to kiwi/US strength as the kiwi dollar doesn't have a lot of people selling on the topside," said Sam Tuck, senior manager FX at ANZ New Zealand. Investors with a short position expect a currency will fall in value.

"When heavy buying pressure comes into the New Zealand dollar, the New Zealand dollar has a bit of a lack of liquidity so I suspect that is the reason why the New Zealand/US is above 83," Tuck said.

In New Zealand today, traders will be eyeing a report which is expected to show about 10,000 jobs were added in the three months to Sept. 30 as the unemployment rate dipped to 6.3 percent from 6.4 percent, according to a Reuters poll. The labour market data is scheduled for release at 10:45am.

The New Zealand dollar will probably trade between 82.60 US cents and 83.50 cents today, touching the topside should the employment report print positive, Tuck said.

The kiwi will probably trade between 87-88 cents Australian cents, Tuck said. Australia releases its trade balance for September at 1:30pm New Zealand time.

The local currency "shrugged off" a report this morning showing a 1.8 percent average decline in global dairy prices, Mike Jones, currency strategist at Bank of New Zealand said in a note. The result was within expectations and prices remain elevated, Jones said.

Later today, New Zealand's Reserve Bank publishes weekly mortgage approvals. Weakness in the figures, scheduled for release at 3pm, may be used by speculative investors to add to their New Zealand dollar short positions, Jones said.

The New Zealand dollar increased to 61.61 euro cents from 61.18 cents yesterday as speculation mounts ahead of the European Central Bank meeting tomorrow that easier monetary policy is on the way after data last week showed lower-than-expected inflation.

The European Commission downgraded its 2014 growth estimate overnight to 1.1 percent from 1.2 percent with downside risk while leaving its 2013 estimate for a contraction of 0.4 percent unchanged.

The kiwi rose to 81.81 yen from 81.37 yen yesterday and was little changed at 51.74 British pence from 51.73 pence. The trade-weighted index advanced to 77.19 from 76.80 yesterday.

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