Kiwi gains as investors look for safety amid Cypriot conundrum

New Zealand gained against most of its major trading partners and was little changed against the greenback as investors seek relatively safe places for their cash as the impact of the Cyprus bailout washes through the rest of Europe.

The kiwi was little changed at 83.77 US cents at 5pm in Wellington from 83.81 cents at 8am and held gains from 83.45 cents yesterday. The trade-weighted index, a measure of the currency against a basket of trading partners, rose to 77 from 76.61 yesterday.

The yield on 10-year Spanish government bonds was up 7.4 basis points to 5.01 percent as investors brace for the fallout of a 10 billion euro rescue package for Cyprus.

Traders are concerned the controls being put on Cyprus' banking system may cause a run on banks in the more heavily indebted European nations, such as Spain, Portugal and Italy, and could lead to another debt crisis.

Investors are looking for safe havens and "we're a country that's nowhere near the eurozone", says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional. "There seems to be safe haven buying on the crosses, with the kiwi/euro, kiwi/sterling and TWI stronger."

The kiwi rose to 55.25 British pence from 54.93 pence yesterday and gained to 65.21 euro cents from 64.81 cents.

Mr Kelleher says demand for relatively safer investments means investors are also returning to the greenback, which is why the kiwi has stayed in a range of between 82.50 US cents and 84.50 cents.

Fonterra, the country's biggest company and the largest dairy exporter in the world, increased its forecast payout to farmers by 30 cents a kilogram of milk solids to $5.80 as spreading drought across New Zealand saps supply and pushes up global prices.

Business confidence here slipped this month from a 19-month high as the drought stoked pessimism in the agricultural sector, according to the ANZ Business Outlook.

The local currency gained to 79.42 yen from 78.67 yen yesterday and increased to 80.02 Australian cents from 79.81 cents.

(BusinessDesk)