Kiwi gains as investors reassured about Chinese liquidity, growth

The New Zealand dollar gained as investors were reassured China's central bank would help ease a credit crunch that sparked concerns about growth in the world's second-largest economy.

The kiwi edged up to 77.30 US cents from 77.16 cents at 5pm in Wellington yesterday. In the past 12 hours, it has traded as low as 76.95 cents and as high as 77.95 cents. The trade-weighted index inched up to 72.91 from 72.79 yesterday.

The kiwi dropped yesterday as Asian stock markets fell and traders dumped risk-sensitive currencies over concern a tightening of banking liquidity by the People's Bank of China would sap growth there.

It then rebounded after China's central bank said it had provided liquidity to some financial institutions to stabilise money market rates, the first official signs of relief to ease a credit crunch.

"The Chinese stock market plunged 6 percent during our late afternoon then in the last hour of trading it completely reversed and closed slightly up for the day," says Imre Speizer, senior currency strategist at Westpac Banking Corp.

"The initial scare completely subsided, that helped things rebound a bit and then everything just went sideways. For the day, it can correct a bit higher."

China is the world's most-populous country and New Zealand's second-largest export market.

The kiwi has been on a downward path against the greenback since Federal Reserve chairman Ben Bernanke said last week the central bank may start winding back its $US85 billion a month asset purchase programme this year if economic data continues to improve.

In the US yesterday, economic figures provided evidence of further strength as reports on durable goods orders, sales of new homes, home prices and consumer confidence all beat analysts' expectations.

The Conference Board's index of consumer confidence rose to 81.4 in June from 74.3 in May. Durable goods orders gained 3.6 percent last month, while sales of new homes increased more than forecast in May, climbing to the highest level in almost five years, and home prices rose more than forecast in the 12 months through April.

The kiwi may continue its decline, Mr Speizer says. "It's just a short-term correction and it shouldn't last more than a few days." 

The kiwi was little changed against the Australian dollar, recently trading at 83.44 Australian cents, from 83.47 cents yesterday. It edged up to 75.58 yen from 75.23 yen, rose to 59.05 euro cents from 58.83 cents and gained to 50.09 British pence from 49.98 pence.

(BusinessDesk)