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NZ dollar hits 2-week high on US dollar sell-off in Asia

Thursday 5th January 2017

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The New Zealand dollar rose to a two-week high, lifted by widespread selling of the US dollar and the biggest rally in the value of the Chinese yuan in a year. 

The kiwi gained to 69.89 US cents at 5 pm in Wellington from 69.56 US cents at 8 am and 69.02 US cents this time yesterday. The trade-weighted index increased to 77.59 from 77.13 yesterday. 

The greenback had been trading at 14-year highs off the back of Donald Trump's victory in the US Presidential election. Minutes published overnight by the United States Federal Reserve suggested members believed three rate hikes would be needed in 2017 in response to the incoming President's aggressive stimulus and infrastructure projects, which are expected to stoke inflation. 

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank in Auckland, said Asian currencies had all benefited from a large-scale sell-off of the US dollar. 

"It’s been quite volatile today, the biggest thing has been the offshore move on the yuan which has seen the biggest rally in a year that’s fed through to the Asian currencies including the kiwi. The People’s Bank of China has clearly come in and told state-backed companies to sell US dollars, and there’s been selling of US dollars across the board in Asia."

Kelleher added that he believed an interim low in the value of the kiwi had now passed. 

"There's definitely been a shift, the kiwi held at 68 and a half cents, then yesterday it was at 69 cents, and held again, and now with the move in the yuan, I think we've seen an interim bottom for the kiwi dollar."  

The New Zealand dollar broke below the 70 US cent mark during the middle of December, having spent most of the last six months of 2016 trading within a range of 70 to 74 US cents. 

The kiwi gained slightly against its trans-Tasman counterpart, rising to 95.81 Australian cents from 95.34 cents yesterday. The Australian dollar was also trading at two-week highs against the greenback. Against the Chinese yuan, the New Zealand dollar rose slightly to 4.8406 Chinese yuan from 4.8004 yuan a day earlier. 

The local currency gained slightly against the euro, rising to 66.42 euro cents from 66.32 euro cents yesterday. It also appreciated against the British pound, rising to 56.70 British pence from 56.36 pence. The kiwi fell slightly against the Japanese Yen, dropping to 81.38 yen from 81.46 yen.

The two-year swap rate fell 6 basis points to 2.34 percent, while the 10-year swap rate fell 6 basis points to 3.38 percent.

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