Kiwi heads for 2.1% weekly gain as Fonterra fears ease, China stokes risk appetite

Investors shrug off concerns about New Zealand's dairy exports | Chinese figures reinvigorate optimism

The New Zealand dollar is heading for a 2.1 percent weekly gain against the greenback as investor concerns about Fonterra's food scare ease and as Chinese figures reinvigorate optimism about Australasia's biggest trading partner.

The kiwi slopped to 79.93 US cents at 5pm in Wellington from 80.17 cents at 8am, though up from 79.60 cents yesterday. It started the week at 78.31 cents, slumping to a month-low 76.99 cents at the height of the Fonterra scare.

The trade-weighted index advanced to 75.01 at 5pm from 74.90 yesterday, and is heading for a 0.2 percent decline, starting the week at 75.14.

A BusinessDesk survey of 10 traders and strategists on Monday, at the height of the food scare, predicted the local currency would trade between 75.50 US cents and 80.60 cents this week. Five expected it to fall, two picked a gain and three said it would stay neutral. One of those expecting a gain said he was unsure about the effect of Fonterra.

Investors shrugged off concerns about New Zealand's dairy exports as trading partners refrained from imposing blanket import bans and as Fonterra managed to get the potential food taint under control within days.

The kiwi got a further boost as improving trade figures in China fuelled demand for the Australian dollar, with the transTasman currencies typically moving in unison.

"Fonterra recovered pretty quickly - the action was all on Monday," says Alex Hill, head of dealing at HiFX in Auckland. "The kiwi's at the top of the range really - it still looks like a relief rally to some degree."

He says the kiwi was also being helped by its Australian counterpart, which has rebounded after the Reserve Bank of Australia cut rates as expected on Tuesday, without keeping the door open for more reductions.

"The Aussie is the most oversold of the currencies out there - the whole market was short and it [the RBA] didn't surprise."

The kiwi will probably go back to following US dollar news and speculation on when the Federal Reserve will start unwinding its stimulus, Mr Hill says.

The next local data investors will watch for is second-quarter retail sales on Wednesday. Traders predict the Reserve Bank will start hiking interest rates to combat inflation from as early as the end of this year, and consumer spending may push around those expectations.

The kiwi was unchanged at 87.68 Australian cents at 5pm today from the same time yesterday, and inched up to 77.06 yen from 76.92 yen. It was little changed at 59.72 euro cents from 59.66 cents yesterday and traded at 51.42 British pence from 51.36 pence.