NZ dollar gains as geopolitical fears wane, stoking risk appetite, demand for yield

The New Zealand dollar rose as waning geopolitical concerns revived investors' risk appetite and demand for growth-linked currencies offering higher returns.

The kiwi dollar rose to 69.23 US cents as at 5pm in Wellington from 69.16 cents in New York on Friday. The trade-weighted index edged up to 75.39 from 75.27.

So-called 'de-escalation' zones in major conflict areas of western Syria came into effect over the weekend as part of an initiative brokered by Russia and fighting between forces of President Bashar al-Assad's regime and rebels has reportedly eased since then. Meanwhile, France's centrist candidate Emmanuel Macron has beaten National Front candidate Marine Le Pen for the presidency by about 66 percent to 34 percent, ensuring the European Union doesn't face further disruptions after last year's Brexit vote. And US President Donald Trump's success with his healthcare reforms has revived optimism he may have other successes including on his plan to slash corporate tax.

"There has been positive re-pricing of risk in favour of the kiwi - a bit of risk-on sentiment across the market," said Sheldon Slabbert, a trader at CMC Markets. "Precious metals have been falling, the carry trade in back on and the yen is weakening again."

The kiwi rose to 78.04 Japanese yen from 77.97 yen and is trading near its highest level since the end of March. Spot gold has retreated from its highs in April and is now near its lowest level since mid-March. 

Slabbert says helping the kiwi dollar story has been relatively stable economic data and price gains at recent GlobalDairyTrade auctions. While the Reserve Bank is expected to keep the official cash rate unchanged at 1.75 percent on Thursday, it is also likely to give the New Zealand economy "a clean bill of health," Slabbert said.

The market is putting the odds of a June rate hike by the US Federal Reserve at between 85 percent and 90 percent with 70 percent odds of a second hike in September, but Slabbert said there is a chance the Fed will hike once and leave rates unchanged for the remainder of the year.

The kiwi rose to 63.10 euro cents, reversing an earlier decline, from 62.96 cents in late New York trading on Friday. It rose to 93.48 Australian cents from 93.25 cents at the end of last week and gained to 53.41 British pence from 53.31 pence. The local dollar rose to 4.7769 yuan from 4.7728 yuan.

New Zealand's two-year swap rate rose 2 basis points to 2.34 percent and the 10-year swaps rose 4 basis points to 3.43 percent.

(BusinessDesk)