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NZ dollar rises to 9-mth high as German confidence, Fed hopes lift stocks

Wednesday 12th December 2012

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The New Zealand dollar rose to a nine-month high as hopes Germany will avoid recession and optimism the Federal Reserve will enact more easing measures helped stocks rally and lift risk sentiment.

The kiwi dollar climbed to 83.83 US cents from 83.43 cents at 5pm in Wellington yesterday. The trade-weighted index rose to 74.84 from 74.66.

The euro gained and stocks rose across Europe, with the Stoxx 600 Index gaining 0.3 percent, after Germany's ZEW Center for European Economic Research said its index of investor and analyst expectations rose to 6.9 in December from minus 15.7 last month, beating expectations. The rally extended onto Wall Street and the Standard & Poor's 500 Index gained about 0.9 percent on speculation the Fed will announce a fresh round of quantitative easing.

Germany is "the bright spot in Europe," said Mike Jones, strategist at Bank of New Zealand. Improved investor sentiment "suggests Germany may yet avoid a recession. The rally started in Europe and spilled over to the US."

Whether growth-linked assets rally more on a Fed announcement of further easing may depend on the size of the programme, Jones said. The kiwi may be approach 84 US cents today and find support at around 83.60 cents, he said.

Underlining the need for further stimulus for the US economy, figures showed the trade deficit rose 4.9 percent to US$42.2 billion in October and Imports fell to the lowest level in 1-1/2 years and exports suffered the biggest percentage drop since January 2009.

BNZ expects the Fed's Operation Twist to be replaced by between US$25 billion and US$45 billion a month of outright Treasury purchases and continued buying of mortgage-backed securities.

The kiwi slipped to 64.46 euro cents from 64.51 cents yesterday and gained to 52.02 British pence from 51.89 pence. The local currency rose to 69.18 yen from 68.70 yen.

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