Dollar rises to five-week high

The New Zealand dollar rose to a five-week high as weaker-than-expected service sector indicators in the US and UK raised questions about how quickly those two economies will return to normal monetary policy, and stoked investors' appetite for risk-sensitive assets.

The kiwi touched 65.30USc, the highest since August. 25, and traded at 65.04USc at 8am in Wellington, down from 64.65USc yesterday. The trade-weighted index advanced to 70.62 from 70.26 yesterday.

Service sector PMIs in the US and UK missed expectations, weighing on the expected pace and timing for their respective central banks to start raising interest rates. The prospect of lower interest rates fuelled investors' demand for assets delivering higher yields, with equity markets up on both sides of the Atlantic and pushing commodity prices higher. That helped lift currencies linked to commodity price movements, such as the New Zealand, Australian and Canadian dollars.

"It was a bit of a 'risk-on' session, with weaker US ISM service sector data and a weaker UK PMI service sector – that's thrown the normalisation theme for the time being and caused a broad-based asset rally," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "If the kiwi's strength persists, and that's a large if, it would be the first time since July last year it's broken back up into a range."

Traders will be watching the New Zealand Institute of Economic Research's quarterly survey of business opinion today for signs on local business confidence and activity.

The Reserve Bank of Australia reviews monetary policy today and is expected to keep the target cash rate at 2%, though traders will be looking for any indications the central bank may cut rates in the future. The kiwi rose to 91.70Ac at 8am in Wellington from 91.39Ac yesterday.

The local currency advanced to ¥78.34 from ¥77.61 yesterday, and rose to 4.1326 Chinese yuan from 4.1091 yuan. It gained to 58.15 euro cents from 57.55 cents yesterday, and increased to 42.93 British pence from 42.47p yesterday.

(BusinessDesk)