Dollar advances as investors favour risk sensitive assets after Crimea, Yuan fears ease
The New Zealand dollar rose as investors returned to more risk sensitive assets as fears over an escalation of tension in Ukraine proved unfounded and markets were relatively stable after China widened the trading band of its currency.
The kiwi increased to 85.67 US cents at 8am in Wellington from 85.32 cents at 5pm yesterday. The trade-weighted index gained to 79.92 from 79.70 yesterday.
Risk sensitive assets such as equities and the New Zealand dollar advanced after investors were becalmed by the moderate diplomatic reaction following Crimea's vote to join Moscow over the weekend as the US and European Union imposed sanctions. The People's Bank of China doubled the yuan's trading band, seen as a move to support the world's second-biggest economy amid slowing exports.
"Markets breathed a collective sigh of relief last night as fears of Crimea and China volatility failed to materialise," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck said in a note. "Safe havens Japanese yen and Swiss franc depreciated, while the risk sensitive New Zealand dollar and Australian dollar appreciated.
The local currency is likely to maintain its strength today as there is little fundamental news to change market sentiment, ANZ said.
The New Zealand dollar advanced to 87.16 yen from 86.62 yen yesterday.
The kiwi slipped to 94.27 Australian cents from 94.43 cents yesterday. The Aussie strengthened after Westpac Banking Corp said yesterday it no longer expects Australia's central bank to cut rates this year.
The Reserve Bank of Australia releases the minutes of its last meeting today, which are expected to confirm interest rates will remain on hold. Traders will be looking for any further comment on the "high" level of the currency, which was mentioned in the March statement, ANZ said.
The local currency gained to 61.55 euro cents from 61.35 cents yesterday and increased to 51.50 British pence from 51.28 pence.