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NZ dollar heads of 1.2% weekly drop as traders reduce high-risk bets

The New Zealand dollar is heading for a 1.2 percent fall this week as investors pare back their bets on high-risk assets, after chasing yield since September when it looked like the US Federal Reserve was reluctant to wind down its massive stimulus programme.

The kiwi traded at 80.98 US cents at 5pm in Wellington from 81.93 cents at the start of the week and 81.29 cents at 8am and 81.65 cents yesterday. The trade-weighted index fell to 76.18 from 76.73 yesterday, and is heading for a 1 percent weekly drop from 76.93.

A BusinessDesk survey of eight traders and strategists on Monday predicted the kiwi would trade between 80 US cents and 83.90 cents this week. Four expected the kiwi to fall, three picked it to remain unchanged while one said it might gain.

The local currency fell below a 10-week range yesterday as investors saw improving US data as the sort of signal the Fed might heed to slow its US$85 billion a month asset purchase programme. That in turn, would fuel demand for the US dollar, which has been debased by the policy.

"The kiwi got the most positive positioning out of other high beta currencies," said Imre Spezier, market strategist at Westpac Banking Corp, referring to the strategy of betting risk-sensitive assets will appreciate. "The kiwi's probably overpriced at this stage."

The local currency is heading for a 2 percent monthly decline against the greenback, its sixth this year. On a trade-weighted basis, the currency is only heading for a 0.2 percent fall in November.

Government figures today showed the pace of new residential building intentions slowed last month, with a 2.3 percent decline in permits for new houses. That coincided with the Reserve Bank imposing restrictions on the level of low equity lending banks can write on housing, a policy it pursued in lieu of interest rate hikes, which may have fuelled demand for the over-valued kiwi dollar.

The local currency dropped to 49.47 British pence from 50.07 pence yesterday after the Bank of England said the UK housing market was strong enough for it to pull its support for a home lending scheme.

The kiwi fell to 59.47 euro cents from 60.12 euro cents yesterday, and declined to 89.22 Australian cents from 89.43 cents. It decreased to 83 yen from 83.32 yen yesterday.