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The New Zealand dollar rose to a post-float high on a trade weighted basis after a more upbeat outlook from credit rating agency Fitch Ratings attracted investors seeking bigger returns.
The trade-weighted index climbed to 81.72 at 5pm in Wellington from 81.51 yesterday. The local currency was trading at 87.93 US cents, from 87.83 cents at 8am this morning and up from 87.63 cents at 5pm yesterday.
The kiwi rose to a three year-high against the greenback overnight after Fitch affirmed the New Zealand's AA rating and upgraded the outlook to positive from stable. The currency is now in reach of breaching the post-float record of 88.40 US cents as New Zealand's rising interest rates cause a resurgence in the carry trade, where investors borrow cheaply in their home currency to invest in higher yielding currencies such as the kiwi dollar.
"Fitch was the catalyst for that particular jump higher but overnight there was a general uptrend for both Aussie and kiwi and a whole bunch of emerging market currencies - the big theme at play still is one where the carry trade reigns supreme," said Raiko Shareef, a currency strategist at Bank of New Zealand. "It peaked its head above 88 cents - it's still a struggle for the kiwi to break that level in any significant fashion, it keeps on testing it."
The Federal Reserve will release minutes for its June meeting on Wednesday in Washington. Traders will be looking for any insight into the central bank's view on the world's largest economy, particularly around the state of employment and whether data shows enough pick up in the US job market, said Shareef. Some investors are speculating the stronger employment data will prompt the Fed to hike interest rates sooner than expected.
The New Zealand dollar rose to 93.57 Australian cents from 93.35 yesterday. Traders will be watching tomorrow's employment figures across the Tasman, where unemployment has been static at 5.8 percent for the past three months. Any significant changes is likely to weigh on the TWI owing to the Australian dollar's weight in the index.
The kiwi increased to 64.56 euro cents from 64.41 cents yesterday, gained to 51.32 British pence from 51.16 pence and was little changed at 89.34 yen from 89.21 yen yesterday.