Dollar heads for 1% weekly gain as prospect of Greek deal, stable Chinese equities soothe nerves

The New Zealand dollar is heading for a 1% weekly gain against the greenback as turbulence in financial markets settles down with the prospect of Greece reaching a deal with its creditors and stabilising Chinese equity markets soothing frazzled investors.

The kiwi rose to 67.62USc at 5pm in Wellington from 66.93USc on Friday in New York last week. It traded at 67.28USc at 8am and 67.31USc yesterday. The trade-weighted index advanced to 71.29 from 71.03 yesterday, and is heading for a 1.1% weekly gain.

A BusinessDesk survey of eight currency advisers on Monday predicted the kiwi would trade between 65-69USc this week. Five expected the New Zealand dollar would fall, while three had a neutral outlook for the currency.

Stock markets across Asia rose, following Wall Street higher, as investors regained some of their appetite for risk-sensitive assets on increased optimism Greece's proposals to access bailout funds included spending cuts, and as measures by Chinese authorities ended a slump in that nation's equity markets. European leaders will meet this weekend to decide whether to accept Greece's offer.

"We're in an improving risk environment, with signs of a deal coming out of Greece and stability in China equity prices and commodity prices," said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. Any gain in the kiwi "is going to be a shortlived phenomenon – there might be a little bit more for the kiwi given the market was heavily short and has been for quite some time," meaning investors were betting the currency would depreciate.

A 32% slump in China's benchmark Shanghai Composite index over the past month fuelled concerns about the strength of the world's second-biggest economy, and weighed on the Australian dollar, with traders viewing Australia as being more exposed to China. The local currency gained to 90.38Ac from 90.10Ac yesterday, and rose to 4.1978 Chinese yuan from 4.1796 yuan.

BNZ's Mr Shareef said European leaders will be close to deciding on whether to accept Greece's deal when New Zealand's market opens on Monday, which will be keenly watched by investors.

Traders will also be looking forward to a speech by Federal Reserve chairwoman Janet Yellen on the US economic outlook for any hints on when the central bank may plan to start raising interest rates.

New Zealand's two-year swap rate edged up to 2.96% at 5pm in Wellington from 2.95% yesterday, and the 10-year swap rate climbed to 3.83% from 3.73%.

The local currency increased to 60.92 euro cents from 60.79 cents yesterday, and edged up to 43.90 British pence from 43.77p. The kiwi climbed to 82.32 yen from 81.68 yen yesterday.

(BusinessDesk)