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NZ dollar gains after Chinese central bank cuts rates to stimulate demand

02 Mar 2015

The New Zealand dollar advanced on expectations a reduction in interest rates in China may stimulate demand for New Zealand commodities in the country's largest trading partner.

The kiwi rose to 75.65 US cents 8am in Wellington, from 75.60 cents at the New York close and 75.48 cents at 5pm in Wellington on Friday. The trade-weighted index increased to 78.65 from 78.42 on Friday.

China, Asia's largest economy, cut its key deposit and lending rates by 25 basis points to 2.5 percent and 5.35 percent respectively as it attempts to bolster slowing economic growth. The cuts announced at the weekend come ahead of the annual meeting of the country's parliament this week where Chinese officials are expected to announce this year's growth target. Some analysts expect more cuts to come as China seeks to stave off deflation and stimulate a weakening economy.

"China cut both its deposit and lending rate at the weekend, a move that has supported the New Zealand dollar and the Australian dollar as the moves should drive commodity demand," ANZ Bank New Zealand senior FX strategist Sam Tuck and senior economist Mark Smith said in a note. "ANZ believe more easing policies can be expected."

ANZ said Chinese authorities will probably lower the country's growth target to 7 percent this year in the upcoming National People's Congress. China's economy grew at a 7.4 percent rate last year, missing its 7.5 percent target.

The kiwi will probably trade between 75.10 US cents and 76.20 cents today, ANZ said.

In New Zealand today, traders will be eyeing fourth quarter terms of trade data, which is expected to weaken due to drag from the dairy sector.

The New Zealand dollar was little changed at 96.70 Australian cents from 96.76 cents on Friday, ahead of the Reserve Bank of Australia decision on interest rates tomorrow.

The kiwi rose to 67.67 euro cents from 67.30 cents on Friday, edged up to 49 British pence from 48.89 pence and rose to 90.57 yen from 90.02 yen.

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