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Kiwi follows Ausi dollar higher

Wednesday 21st July 2010

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The New Zealand dollar followed its Australian counterpart higher as minutes from the Reserve Bank of Australia’s July meeting gave a more upbeat outlook for the nation’s biggest export market.

The RBA is still positive in its outlook for Australian trade, which has been underpinned by Chinese demand, and news it will ignore the upcoming Federal election when setting monetary policy helped buoy investors’ appetite for the so-called commodity currencies.

This was further stoked by the Bank of Canada hiking its benchmark interest rate 25 basis points to 0.75%, which kept investors betting the Reserve Bank of New Zealand will lift the official cash rate at its next review next week. Markets expect the OCR to climb 1.28 percentage points in the next year, according to the Overnight Index Swap curve.

“The RBA minutes and Governor Stevens’ speech weren’t massively upbeat, but they were certainly positive, and the market took it as strength,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “The Aussie dragged the kiwi with it, and the Bank of Canada added support to the antipodean currencies.”

The kiwi climbed to 71.56 US cents from 71.20 cents yesterday, and gained to 67.30 on the trade-weighted index of major trading partners’ currencies from 66.94. It jumped to 62.56 yen from 61.81 yen yesterday, and slipped to 81.03 Australian cents from 81.16 cents. It rose to 55.51 euro cents from 55.02 cents yesterday, and was little changed at 46.84 pence from 46.81 pence.

Kelleher said the currency may trade between 71.25 US and 71.85 cents today and will “test the topside” as it follows sentiment in Asian equity markets.

European stocks fell as Hungary missed its target in its first debt sale since international creditors suspended talks. Wall Street rallied late in the New York session after shares in investment bank Goldman Sachs Group gained following a disappointing earnings result. Apple Inc. beat earnings expectations for the quarter in which it unveiled its new iPad device.

Markets are waiting for Federal Reserve chairman Ben Bernanke’s semi-annual congressional testimony on monetary policy.

Kelleher said the Australian and New Zealand currencies gained against the yen amid speculation the Bank of Japan may intervene in currency markets after Japanese investors’ recent aversion to higher yields encouraged them to repatriate their funds. The yen weakened to 87.47 per US dollar from 86.84 yesterday.

Local immigration data for June is expected to show an increase in Asian tourist numbers, though Kelleher said the data will probably show more New Zealanders moved to Australia in the past year.

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