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NZ dollar gains on yield appeal

25 Mar 2015

The New Zealand dollar rose as the nation's relatively appealing interest rates drew investors who had unwound long US dollar positions following last week's Federal Reserve Open Market Committee meeting.

The kiwi edged up to 76.36 US cents as at 5pm in Wellington, from 76.28 cents yesterday. The trade-weighted index eased to 79.47 from 79.53.

The Reserve Bank's 3.5 percent official cash rate is a standout among central banks in developed nations, which have been cutting borrowing costs or already have benchmark rates near zero. While the RBNZ has said it may raise or lower rates from here, the US Federal Open Market Committee last week lowered its outlook for US growth, inflation and interest rates in a statement deemed more dovish than expected by some market participants.

"Market positioning was very long US dollars and has been going through an unwinding a little," said Martin Rudings, senior dealer at OMF. "The weak US dollar is driving everything and the kiwi, with a higher yield than anything else, is benefitting a bit more."

Still, Rudings said, he remains "medium-term, a US dollar bull," even if an FOMC rate hike is pushed back to September.

"The US dollar is moving out of the global financial crisis and we're starting to see some areas of recovery," he said. By contrast, "there are no green shoots in Europe at all - some good numbers but coming off a low base."

The kiwi didn't move much after Fonterra Cooperative Group affirmed its milk payout forecast, while lowering its guidance for dividend payments and reporting tough conditions in the dairy industry that contributed to a 16 percent drop in first-half profit. It was also relatively unchanged after government figures showed a smaller-than-expected trade surplus in February of $50 million, while the annual trade deficit was $2.18 billion, the biggest gap since August 2009, and larger than the $1.82 billion deficit forecast in the Reuters poll.

The kiwi rose to 51.34 British pence from 51.10 pence yesterday and declined to 96.85 Australian cents from 97.22 cents. The kiwi was little changed at 69.84 euro cents from 69.93 cents and traded at 91.31 yen from 91.38 yen yesterday.

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