Kiwi above 80 US cents for first time in a month amid lull

The New Zealand dollar rose above 80 US cents for the first time in a month as a lull in US data keeps traders unsure where the Federal Reserve is leaning in its plan to unwind its stimulus programme, and as volatility in financial markets dwindled to a three-month low.

The kiwi rose as high as 80.06 US cents, trading at 79.96 cents at 5pm in Wellington from 79.64 cents at 8am and 79.32 cents yesterday. The trade-weighted index gained to 75.43 from 75.08 yesterday.

Traders are in a quiet patch ahead of next week, when the Fed will review monetary policy and figures will show how the US economy, its labour market and manufacturing are all tracking.

At the same time, the Chicago Options Exchange Board's Volatility Index, known as the VIX and treated as Wall Street's 'fear gauge', fell to a three-month low 12.06.

Risk-sensitive assets, such as the kiwi dollar, typically find more favour among investors when volatility is low.

"We're going through a bit of a black-out period before the Fed meeting at the beginning of August, and it potentially could be a bit directionless for the US dollar in the next week or so," says Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "The kiwi is right at the top end of the range."

He says the local currency might get pushed around when New Zealand's Reserve Bank reviews monetary policy on Thursday, depending on what governor Graeme Wheeler decides to focus on. Analysts expect Mr Wheeler will keep the official cash rate unchanged at 2.5 percent.

"I don't expect them to change their outlook too much," he says.

Economists expected New Zealand posted a monthly trade deficit of $100 million in June for an annual shortfall of $1.26 billion when Statistics New Zealand publishes the overseas merchandise trade figures tomorrow.

The kiwi rose to 86.20 Australian cents from 85.99 cents yesterday and gained to 60.56 euro cents from 60.33 cents. It edged up to 51.99 British pence from 51.88 pence yesterday and increased to 79.50 yen from 79.33 yen yesterday.

(BusinessDesk)