The New Zealand dollar rose as investors keep tabs on the tensions between Russia and Ukraine and their possible spillover into broader markets, in a week where there's little economic data to drive sentiment.
The kiwi increased to 85.53 US cents at 5pm in Wellington from 85.39 cents at 8am and 85.37 cents yesterday. The trade-weighted index was 79.90 from 79.95 yesterday.
The leaders of the world's seven leading industrialised nations, known as the G7, have been meeting in the Hague to discuss possible sanctions against Russia, which annexed the Crimean Peninsula this month while saying it won't make any land-grabs against Ukraine. Geo-political tensions have occupied investors, with a small flow of hard economic data this week. The G7 leaders plan to boycott a G8 summit in Sochi in June and will impose stricter sanctions on Russia if it makes more moves against Ukraine.
"What would directly affect us would be an escalation in the situation in Russia and Ukraine, but at this moment in time it doesn't appear to be happening and I would expect risk to come on," said Stuart Ive, senior client adviser at OMF in Wellington. "The kiwi may creep a little higher this week, but that's very subject to any further developments from Russia."
New Zealand's economic prospects and bias to rising interest rates make the kiwi an attractive prospect for investors seeking a higher yield, and Ive said he wouldn't expect major institutions to shift their asset allocations away from the local currency when they reset the weightings at the end of quarter on Monday.
"The kiwi economy continues to march on and many people point out it's basically the sweet spot," Ive said.
Traders will keep tabs on a speech by Reserve Bank of Australia deputy governor Philip Lowe in Hong Kong entitled 'Opportunities and Challenges for Market-based Financing', as investors grow more upbeat about the prospects for the Australian economy. The local currency fell to 93.55 Australian cents at 5pm in Wellington from 93.97 cents yesterday.
It traded at 87.44 yen from 87.43 yen yesterday, and increased to 61.83 euro cents from 61.70 cents. It edged up to 51.85 British pence from 51.76 pence.
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