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NZ dollar rises; lifted by commodities, global equities

Tuesday 16th November 2010

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The New Zealand dollar rose as commodity prices advanced and a solid performance on global equity markets helped support demand for commodity-linked currencies.

Equities on Wall Street and Europe rose as a burst of merger and acquisition activity bolstered optimism among investors after Caterpillar agreed to buy mining equipment maker Bucyrus International and EMC bought Isilon Systems for US$2.25 billion. The positive sentiment was also helped by stronger US retail sales numbers, a sign that the US economic recovery might be gaining traction. Commodity prices were also firmer overnight after being heavily sold down last week, with the Thomson Reuters/Jefferies CRB Index, a broad index of commodity prices, rising 0.9%.

"Commodities had a good run overnight and equities performed better, and the kiwi and other commodity currencies track those closely," said Khoon Goh, head of market economics and strategy at ANZ New Zealand. "Commodity prices got hit pretty hard last week and are perhaps seeing a bit of a bounce, but it isn't clear whether this bounce is part of a sustained uptrend for the kiwi and Aussie dollars."

The kiwi rose to 77.66 US cents from 77.07 cents late yesterday, and rose to 69.41 on the trade-weighted index of major trading partners currencies from 68.90. It was largely unchanged against the Australian dollar at 78.37 Australian cents from 78.36 cents yesterday, and rose to 64.33 yen from 63.89 yen. It rose to 57.04 euro cents from 56.35 cents yesterday, and advanced to 48.34 pence from 47.85 pence on Friday.

Goh said the European sovereign debt issue continued to hang over currency markets, but at this stage was limited to euro-dollar activity. Ireland has increasingly come under pressure from European member states to accept a bail out rumoured to be in the region of 45 to 90 billion euros.

"One of the reasons for the US dollar gaining a little bit overnight is the ongoing controversy on sovereign debt in Ireland, which has seen the euro continue to come under downwards pressure," said Goh. "Obviously the sovereign issue isn't having a material impact on our part of the world."

He expects the currency to trade in a range of between 77.22 US cents and 77.92 cents today.

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