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Dollar soars to 11-month high as investors favour risk assets

The New Zealand dollar jumped to an 11-month high, making it the best performing major currency overnight, as investors turned to riskier assets after Russia indicated it doesn't intend to claim further territory in Ukraine.

The kiwi touched 86.40 US cents early this morning, its highest level since April, and was trading at 86.28 cents at 8am in Wellington, from 85.63 cents at 5pm yesterday. The trade-weighted index touched a new post-float high of 80.51 and was at 80.39 at 8am from 79.87 yesterday.

Investors favoured more risk sensitive assets after Russian president Vladimir Putin said the country isn't seeking to split Ukraine further after formally claiming Crimea as part of Russia last night. US and European equities rallied and gold lost some of its safe-haven lustre as investors were relieved that Russia doesn't appear to be escalating tensions further.

"Risk assets gained overnight," Bank of New Zealand currency strategist Raiko Shareef said in a note. "The New Zealand dollar has been the main beneficiary from a risk rally stemming from Russia's indication that it does not intend on claiming further territory in Ukraine."

Shareef said sentiment towards the New Zealand dollar may also have been boosted after Prime Minister John Key said during a visit to China that agreement had been reached to allow the kiwi to trade directly against the Chinese yuan.

China is New Zealand's largest trading partner and the agreement will make doing business with China easier by reducing the costs of converting between the two currencies and will stimulate trade and investment, Key announced from Beijing.

Meanwhile, a 5.2 percent fall in prices at Fonterra Cooperative Group's GlobalDairyTrade auction this morning appears to have had little impact on the kiwi. The nation's commodity prices will likely fall modestly through this year, which should help moderate the New Zealand dollar's strength, Shareef said.

In New Zealand today, data will be released on the fourth quarter current account balance at 10:45am.

The New Zealand dollar jumped to 87.59 yen from 87.16 yen yesterday, advanced to 61.94 euro cents from 61.46 cents, increased to 52.01 British pence from 51.45 pence and rose to 94.54 Australian cents from 94.24 cents.

(BusinessDesk)

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Comments and questions
1

Our dollar (and the TWI ) are gaining against a weakening US$, and similarly will make the journey through to parity and beyond the value of the A$ during 2014, soaring the TWI up into uncharted territory, eviscerating our exporters current slim advantages.
All this because the RBNZ is committed to keep inflation about 2%
Therein lies the game-changer opportunity Labour seeks for this election. A Labour promise to increase the RBNZ restraint to 3% will be welcomed by all and sundry, it will kneecap the OCR where it lies upon such announcement, and will signal the end of the carry trade with the NZ$ and a capital outflow will occur and the Kiwi will begin a gradual decline back to present levels.