Dollar gains amid emerging market turmoil

The New Zealand dollar gained as traders pulled back bets for the Federal Reserve to hike interest rates next month.

The kiwi rose to 66.29USc at 8am in Wellington, from 66.12c at 5pm yesterday. The trade-weighted index advanced to 71.30 from 71.14 yesterday.

Traders sought the safety of assets such as gold overnight as Chinese equities dropped 3.4% on the Shanghai Composite Index, Kazakhstan abandoned its fixed-exchange rate regime causing its currency to slump, 

Turkey's lira fell to a record low as the country's security situation deteriorated ahead of this year's election and North and South Korea exchanged artillery fire in the most serious exchange since 2010. The US dollar index, which measures the greenback against a basket of currencies, fell to a six-week low as traders pushed out expectations for interest rate hikes.

"Global investors are nervous this morning, as a litany of idiosyncratic events through the developing world heightened already-bubbling concerns about emerging market economies," Bank of New Zealand currency strategist Raiko Shareef said in a note.

"As a result, global investors have taken an understandably risk-averse stance.

"Unlike predictable reactions in equities and bonds, major currencies are generally stronger against the US dollar, including the risk-sensitive New Zealand dollar," he says.

"We'd suggest that the reaction in currencies should be framed in the context of a market that is strategically long on the US dollar on a Fed rates view, but where conviction is weakening."

BNZ expects the rally in the kiwi dollar will be capped initially at 66.50USc and then more robustly at 66.90c.

In New Zealand today, July data on migration and electronic spending is scheduled for release.

Traders will be eyeing China's manufacturing data this afternoon for a gauge of how New Zealand's largest trading partner is tracking.

The New Zealand dollar rose to 90.28Ac from 89.92c yesterday, slipped to 59.08 euro cents from 59.3c, gained to 42.24 British pence from 42.15 pence, edged lower to 81.81 yen from 81.95 yen and advanced to 4.2343 yuan from 4.2243 yuan.

(BusinessDesk)