Kiwi recovers from overnight weakness

The New Zealand dollar rose today after a better-than-expected merchandise trade report but the main game this week remains central bank policy decisions.

The kiwi rose to 83.61 US cents at 5pm after falling as low as 82.80 cents, its lowest level since January 4, from 83.59 cents at 5pm on Monday.

Bancorp Treasury says the market may have paid too much attention to an inquiry into manufacturing by opposition parties where it has been argued that there is a crisis in the sector because of the high kiwi dollar.

Other dealers said the test of support last night was in thin, holiday-affected trading and came after a technical support level was breached at 83.50 cents.

The kiwi was finding support this morning and stepped up another 10 basis points on news that New Zealand reported a trade surplus of $486 million in December when the market had been expecting a $105 million deficit.

Westpac expects modest seasonally adjusted trade surpluses in the future due to firm export prices and as the strong kiwi keeps a lid on import prices.

"Further out, circa 2014, we expect the Canterbury rebuild to add more to demand for imports and for the trade balance to return to deficit."

Jane Turner at ASB says Friday's announcement from the European Central Bank that 278 banks intended to repay 137 billion euro of the funds from the central bank's Long Term Refinancing Operation three-year loan facility by the end of this month eased market fears about the funding situation in Europe.

The release next week of individual national central bank's balance sheets for January should provide further detail and markets are expecting to see substantial repayment from Spanish and Italian banks.

The Reserve Bank would be more comfortable with the receding global risks at its official cash rate review on Thursday, she says.

But the bank will need to balance housing market pressures against weaker activity in the wider economy. It is expected to keep the official cash rate unchanged at 2.5 percent.

The cash-rate review is one the same morning as a US Federal Reserve Open Market Committee statement, making Thursday a big day for markets.

A speech by Reserve Bank governor Graeme Wheeler on Friday and US employment data on Saturday NZ time will round out what is expected to ultimately be a busy week for markets.

The kiwi was at 80.16 Australian cents at 5pm from 80.22 cents at the same time yesterday.

It was at 62.16 euro cents from 62.16, at 76.08 yen from 76.13 and at 53.27 British pence from 53.06 pence.

The trade-weighted index was at 75.62 from 75.34.

(BusinessDesk)