Dollar heads for 2.2% weekly gain as global risks subside, local outlook improves

The New Zealand dollar is heading for a 2.2 percent weekly gain against the greenback as fears about the strength of emerging markets subside and the local economic outlook improves.

The kiwi rose to 68.36 US cents at 5pm in Wellington from 66.90 cents on Friday in New York last week. It traded at 68.63 cents at 8am and 68.21 cents yesterday. The trade-weighted index climbed to 73.07 from 72.61 yesterday, and is heading for a 2.2 percent weekly gain.

The local currency has advanced 9.6 percent over the past 30 days, its biggest 30-day gain since April 2011, amid rising global dairy prices, and as encouraging signs in Chinese data and the prospect of later increases in US interest rates soothe investors' concerns about emerging markets. A month ago investors were more pessimistic about New Zealand's economy and emerging markets, and had built in expectations for an early US rate hike, which had had sapped investors' demand for the kiwi in September when it fell as low as 62.37 US cents.

"Where we were at 62 (US cents) was obviously where those three things were pointing downwards in September, and they've just started to turn and here we are now with all three factors pointing up," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi's run feels a little bit overdone."

Government data today showed New Zealand's annual pace of inflation was unchanged at 0.4 percent in the September quarter, leaving the door open for the Reserve Bank to cut interest rates further if necessary. Governor Graeme Wheeler this week said more stimulus was likely to come, though it would be data dependent.

ANZ's Tuck said the inflation data didn't provide guidance one way or the other, with non-tradables inflation softer than expected, while tradables inflation was higher than forecast.

New Zealand's two-year swap rate increased one basis point to 2.71 percent, and the 10-year swap rose two basis points to 3.49 percent.

Traders will be watching US data, including initial jobless claims and industrial production for a steer on the strength of the world's biggest economy, ahead of Chinese gross domestic product figures on Monday.

The local currency climbed to 93.71 Australian cents from 92.80 cents yesterday after the Reserve Bank of Australia warned that over-heated property markets in Sydney and Melbourne were showing signs of slowing, though still posed risks to the nation's financial system.

The kiwi advanced to 4.3453 Chinese yuan from 4.3261 yuan yesterday, and increased to 81.39 yen from 81.20 yen. It rose to 60.04 euro cents from 59.41 cents yesterday, and was little changed at 44.15 British pence from 44.08 pence.

(BusinessDesk)