Kiwi rises on better Chinese manufacturing, upbeat RBA outlook

BUSINESSDESK: The New Zealand dollar rallied in local trading after an economic indicator showed Chinese manufacturing may improve this month and as Australian central bank governor Glenn Stevens gave an upbeat appraisal of his nation's economy.

The kiwi rose to 79.18 US cents at 5pm from 78.87 cents at 8am in Wellington, and was down from 79.40 cents yesterday. The trade-weighted index dropped to 71.90 from 72.07 yesterday.

Investors' appetite for the transTasman currencies got a lift after the HSBC purchasing managers' index showed a gentler pace of contraction in Chinese manufacturing than expected, stoking optimism the world's second-biggest economy won't face as harsh a slowdown as feared.

An upbeat speech on the outlook for Australia's economy by the head of the Reserve Bank of Australia added to the positive mood. The Australian dollar rose 0.2% to $US1.0301 in the New Zealand trading session.

"The Chinese flash MPI data was better-than-expected – that's the main thing" stoking the improvement in investor sentiment, said Imre Speizer, market strategist at Westpac Banking in Auckland.

"We're looking to sell the kiwi on any bounce over the next half a day" with it likely to erase its gains later this week, he said.

The kiwi fell near a two-week low in Northern Hemisphere trading yesterday after the yield on Spanish 10-year government bonds rose to a record-high 7.57% after Spain and Italy imposed a ban on betting stock declines and Spanish region Catalonia joined Valencia in indicating it will probably ask for a central government bailout.

The kiwi fell to 65.27 euro cents from 65.53 cents yesterday.

"The Spanish regions are falling over like dominoes," Mr Speizer said.

New Zealand's central bank will review the official cash rate on Thursday and is expected to keep the benchmark rate unchanged at 2.5%.

Investors will keep a watch on the Australian consumer price index tomorrow, which rose 0.6% in the three months ended June 30 for an annual pace of inflation of 1.3%, according to a Bloomberg survey. The kiwi edged down to 76.82 Australian cents from 76.95 cents yesterday.

The currency was little changed at 61.94 yen from 62.07 yen yesterday, and gained to 5.0548 yuan from 5.0293 yuan. It was unchanged at 50.97 pence.