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Kiwi gains vs Ausi as investors shake off election blues

Tuesday 24th August 2010

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The New Zealand dollar gained against its Australian counterpart as investors shook off concerns about the Federal election result and sought out higher-yielding, or riskier, assets.

The Australian dollar climbed back over 89 US cents as investors ignored the possibility of a hung Parliament, and rallied behind the so-called ‘lucky country’, which managed to avoid falling into recession during the global financial crisis.

The three independent MPs holding the balance of power will wait until all the votes have been counted before they discuss which party they’ll support.

Global sentiment was buoyed on increased talk of merger & acquisition activity in the US and propped up growth sensitive currencies such as the kiwi, though stocks on Wall Street closed the session lower.

“It was real money demand propping up the Australian dollar as exporters saw a buying opportunity,” said Mike Jones, strategist at Bank of New Zealand.

“The kiwi piggy-backed on the stronger Aussie, which confounded market expectations” as it clawed back losses after the uncertain election outcome, he said, referring to the currencies colloquially.

The kiwi gained to 79.27 Australian cents from 79.06 cents yesterday, and was little changed at 70.65 US cents from 70.63 cents. It edged up to 66.31 on the trade-weighted index of major trading partners’ currencies from 66.25 yesterday, and slipped to 60.23 yen from 60.29 yen. It rose to 55.81 euro cents from 55.60 cents yesterday and increased to 45.54 pence from 45.44 pence.

Jones said the currency may trade between 70.40 US cents and 71.20 cents today as it continues to track global sentiment, though the Reserve Bank’s survey of inflation expectations may drive it above the range if the two-year track climbs over 3%, which is beyond the central bank’s target.

Europe debt issues continue to linger, with rating agencies raising concerns about France’s sovereign debt. The government of the world’s fifth biggest economy held an emergency meeting yesterday, and Finance Minister Christine Lagarde said her country will do “whatever it takes” to maintain fiscal discipline.

Businesswire.co.nz

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