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Kiwi nears US75c as stocks rally on Bank of Japan rate cut

Wednesday 6th October 2010

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The New Zealand dollar is nearing 75 US cents after share markets around the world rallied as the Bank of Japan cut its benchmark interest rate to near zero amid heightened speculation of more asset purchases from central banks.

The Standard & Poor's 500 Index climbed 2.2% in New York on speculation the BOJ's rate cut and an increase in its quantitative easing programme by up to five trillion yen heralds moves by other central banks that would help stimulate world growth.

There is increasing speculation the Federal Reserve will expand its own asset purchase programme next month when it meets to review monetary policy, weighing on the US dollar.

The kiwi dollar also gained after the Reserve Bank of Australia unexpectedly kept its target cash rate at 4.5%, polishing the relative appeal of New Zealand's currency.

The weak greenback "reflects the fact the US economic outlook is weaker than most of the world, and it should have easier monetary conditions," said Mike Jones, strategist at Bank of New Zealand.

"In an environment where investors are exiting the US dollar and yen, the kiwi still stands out as a reasonably attractive option."

The kiwi jumped to 74.84 US cents from 73.99 cents yesterday, and rose to 66.97 on the trade-weighted index of major trading partners' currencies from 66.69. It climbed to 62.27 yen from 61.94 yen yesterday, and fell to 77.08 Australian cents from 77.33 cents. It was little changed at 54.07 euro cents from 54.01 cents yesterday, and rose to 47.07 pence from 46.82 pence.

Jones said the currency will probably break through 75 US cents today when Asian markets open after strong sessions in New York and London, and may trade in a range of between 74.30 cents and 75.20 cents.

The kiwi dollar largely ignored the 2.1% decline in the price of whole milk powder on Fonterra Cooperative Group's latest online auction. On a trade-weighted basis, prices slipped 1.3%, and BNZ's Jones said they held up reasonably well after last month's gain, and are only a "smidge below previous record highs".

The next major event for investors will be Friday's US employment data, with the focus on private payrolls due to distortion from the country's census. The market is picking a 75,000 gain in private employment last month.

"If the payrolls come in weak, you'll have every reason to keep selling the US dollar and keep buying the kiwi and the Aussie," Jones said, referring to the trans-Tasman currencies colloquially.

Korean regulators set to start an audit of lenders dealing with forex derivatives later this month, while Brazil doubled its tax on foreign investment on fixed income securities to 4%.

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