NZ dollar may extend gain as US manufacturing gauge weighs on greenback; buoyed by oil prices

Tuesday 23rd February 2016

The New Zealand dollar may extend its gain as a gauge of US manufacturing weighed on the greenback and as a rally in oil prices stoked demand for commodity-linked currencies, such as the kiwi.

The local currency traded at 66.97 US cents at 5pm in Wellington from 67.10 cents at 8am, up from 66.51 cents yesterday. The trade-weighted index rose to 72.71 from 72.28.

The Dollar Index, a measure of the greenback against a basket of currencies, fell in the New York session after a Markit manufacturing gauge fell short of expectations, raising questions about the strength of the world's biggest economy. At the same time, risk-sensitive assets followed oil prices higher after an International Energy Agency report anticipated shale-gas production would contract over the next two years.

"The kiwi and the Aussie rallied with the US dollar selling off a bit because the the Markit manufacturing PMI was weak," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "The kiwi/US is getting close to the top of the range, and could possibly break through to 68/68.50 (US cents)."

ANZ's Tuck said the kiwi faces strong resistance at 67.50 US cents.

New Zealand households joined businesses in lowering their inflation expectations, seeing year-ahead consumer prices rising 2 percent, down from 2.2 percent three months earlier, according to a Reserve Bank survey.

Two-year swap rates increased one basis point to 2.47 percent, and 10-year swaps dropped four basis points to 3.13 percent.

The local currency rose to 47.46 British pence from 46.55 pence yesterday, and gained to 60.63 euro cents from 59.84 cents as investors become increasingly focused on Britain's upcoming referendum to exit the European Union.

The kiwi increased to 4.3719 Chinese yuan from 4.3358 yuan yesterday, and was little changed at 75.05 yen from 75.08 yen. It traded at 92.70 Australian cents from 92.77 cents yesterday.

BusinessDesk.co.nz

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