Kiwi heads for 4.3% gain as Chinese stimulus stokes optimism

BUSINESSDESK: The New Zealand dollar is headed for a 4.3% quarterly gain as fund managers reposition their global portfolios against the backdrop of increased optimism after China's central bank became the latest to inject greater liquidity into its financial system.

The kiwi extended its rally to 83.51 US cents at 5pm in Wellington from 83.15 cents at 8am and 82.58 cents yesterday. The trade-weighted index advanced to 74.02 from 73.40 yesterday, and is looking at a 2.6% quarterly gain.

Stocks across Asia extended their rally today after the People's Bank of China yesterday injected a net 365 billion yuan into the financial system this week, bolstering optimism the increased liquidity will soften the slow-down in the world's second-biggest economy.

China's Shanghai Composite gained 1% in afternoon trading, while Hong Kong's Hang Seng index advanced 0.3% and Australia's S&P/ASX 200 index rose 0.2%.

The increased optimism comes as fund managers reassess their portfolio allocations, encouraging them to stick with higher-yielding assets such as the kiwi.

"Everyone thinks the liquidity measures are enough to keep high-yielders in demand, which they are," says Dan Bell, currency strategist at HiFX in Auckland. "The kiwi's been one of the better performing currencies against everyone today."

New Zealand authorities issued 1.9% more new building consents last month, the third straight monthly gain, government figures show. The data showed more evidence the Canterbury rebuild is gathering pace, with $47 million of earthquake-related consents in August.

Investor sentiment was bolstered by the Spanish government's budget, which aims to cut the 2013 deficit to 4.5% of gross domestic product from a target of 6.3% this year.

The budget is seen as a key step in the Mediterranean nation tapping a formal bailout under the European Central Bank's bond-buying programme for its ailing banking system.

The kiwi rose to 64.55 euro cents from 64.07 cents yesterday and gained to 51.35 British pence from 51.01 pence. It moved to 79.79 Australian cents from 79.37 cents yesterday and rose to 64.72 yen from 64.11 yen.