Kiwi rises as Asian stocks rally on improving risk sentiment

BUSINESSDESK: The New Zealand dollar crept up in local trading as a Chinese growth indicator underpinned investors' appetite for risk-sensitive assets and as longer-dated local interest rates fell.

The kiwi rose to 82.29 US cents at 5pm in Wellington from 82.16 cents at 8am, and little changed from 82.39 cents yesterday. The trade-weighted index traded at 73.03 from 73.09 yesterday.

China's leading economic indicator rose 1.7% to 240.4 in August from a month earlier, the Conference Board says, stoking demand for risk-sensitive assets such as the trans-Tasman currencies. The Australian dollar rose to $US1.0427 from $US1.0416 at 8am in Wellington.

That came as New Zealand's longer-dated interest rates fell faster than short-term rates, flattening the so-called yield curve and indicating a smaller premium on long-term rates.

New Zealand's 10-year swap rate, a fixed payment paid to get floating rates, fell almost 5 basis points to 3.68%, while the two-year swap rose half a basis point to 2.67%.

"Broad global risk sentiment improved," says Imre Speizer, market strategist at Westpac Banking in Auckland. "Interest rate markets remain a bit more risk-averse than currency markets."

Speculation Spain may formally seek a bailout for its embattled banking sector has kept investors nervous this week, and traders will keep an eye on German inflation data and US house sales in the Northern Hemisphere sessions.

The health of Europe's economy and the pace of the US recovery has been behind the waxing and waning of risk-sentiment.

New Zealand dairy exporter Fonterra will announce its annual result tomorrow and investors will look for any direction on where the company sees milk prices heading.

Prices have gained in the past four online auctions run through Fonterra's GlobalDairyTrade platform as drought conditions in the Northern Hemisphere put pressure on worldwide supply.

The kiwi traded at 50.72 British pence from 50.77 pence yesterday and was at 63.60 euro cents from 63.78 cents. It fell to 64 yen from 64.16 yen and was little changed at 78.89 Australian cents from 78.91 cents.