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NZ dollar heading for 2% weekly gain as prospect of static US rates scales back greenback bets

Friday 26th February 2016

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The New Zealand dollar is heading for a 2 percent gain against the greenback as investors continue to scale back their bets on the world's reserve currency on the increasing chance US interest rates won't rise as far or as fast as previously thought. 

The kiwi rose to 67.63 US cents at 5pm in Wellington from 66.29 cents on Friday last week in New York. It was up from 67.12 US cents at 8am and 66.47 cents yesterday. The trade-weighted index is heading for a 1.9 percent weekly gain to 73.46 and is up from 72.38 yesterday. 

A BusinessDesk survey of 11 currency advisers predicted the local currency would trade between 65 US cents and 68 cents this week, with five expecting little change, four projecting an increase and two picking a decline.

The local currency has benefited from global investors reducing their holdings of the US dollar as heightened volatility in worldwide financial markets raised the spectre of the Federal Reserve pausing plans to raise interest rates. 

"When you look at interest rate markets they're pricing in zip prospect of the Fed hiking, and FX markets are still catching up," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi is unstoppable at the moment and part of the reason is the market is still winding back its US dollar positions." 

New Zealand's two-year swap rate was unchanged at 2.41 percent and 10-year swaps fell one basis point to a new record low of 3.06 percent. 

"That's quite telling for the kiwi - the NZ TWI is sitting up at 73.60 and you've got the 10-years at around 3 percent and the two-year below the OCR (official cash rate) - there's a bit of a disconnect with interest rates," ANZ's Tuck said. 

Government figures today showed an unexpected monthly trade surplus in January, and a smaller annual deficit than economists were expecting. 

The kiwi jumped to 4.4212 Chinese yuan from 4.3420 yuan yesterday after the People's Bank of China set the nation's currency slightly weaker ahead of a meeting of Group of 20 nations' central bankers and finance ministers in Shanghai this weekend. The local currency climbed to 93.41 Australian cents from 92.68 cents yesterday and gained to 76.31 yen from 74.66 yen. 

It rose to 48.30 British pence from 47.69 pence yesterday and is heading for a 5 percent gain against the pound this week. The UK's currency has been punished by investors this week on the growing uncertainty over a June referendum to decide whether the nation will quit the European Union. The kiwi climbed to 61.13 euro cents at 5pm in Wellington from 60.30 cents yesterday.

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