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NZ dollar rises on hopes Europe's bail-fund will get bigger

Wednesday 28th September 2011

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The New Zealand dollar rose against the greenback, following equities and commodities higher, as hopes that policymakers will bow to pressure to increase the European Financial Stability Fund gathered momentum.

The New Zealand dollar recently traded at 79.11 U.S. cents, up from 78.67 cents yesterday, and rose to 69.98 on the trade-weighted index of major trading partners' currencies from 69.74 previously.

So-called risk currencies such as the kiwi and Australian currencies enjoyed strong demand as hopes that European officials will capitulate to calls by the European Commission, International Monetary Fund and the European Central Bank to increase the size of the bailout fund saw investors seek higher-yielding assets. On Wall Street, the Standard & Poor's 500 Index rose 2% to 1,186.65, Europe's Stoxx 600 surged 4.4% to 229.91, and the 19-commodity Thompson Reuters Jefferies CRB Index rose 2.7% to 311.41.

The sudden risk rally saw the so-called safe haven assets come under pressure, with yields on U.S. 10-year Treasury bills rising to 2.01% from 1.93% previously. Demand for the U.S. currency eased, falling to 77.52 on the Dollar Index, a measure of the greenback against a basket of major currencies, from 77.98 previously.

"We've seen risk sentiment rise, with equities up and commodities up, and all those factors led to a stronger kiwi," said Mike Burrowes, a market strategist at Bank of New Zealand. "Still, one day hopes are high and that lifts sentiment, but then tomorrow they could be dashed, so the theme we need to take from this is that things will remain volatile. We're a very long way off from getting any finality on the EFSF changes."

On the crosses, the kiwi recently traded at 79.49 Australian cents, down from 79.62 cents yesterday, and rose to 60.65 Japanese yen from 60.06 yen previously. It slipped to 58.08 euro cents from 58.12 cents yesterday, and gained to 50.59 pence from 50.50 pence previously.

Burrowes said the kiwi may trade between a range of 78.90 U.S. cents and 80 cents, with the bias towards further gains.


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