The New Zealand dollar rose to a week high against the yen as investors favour higher risk assets on optimism a political impasse that could have forced the US into debt default may be edging towards a compromise.
The kiwi this morning touched 81.49 yen, and was trading at 81.33 yen at 8am in Wellington from 80.67 yen at the 5pm market close yesterday. The local currency rose to 82.88 US cents from 82.58 cents yesterday. The trade-weighted index rose to 76.98 from 76.79 yesterday.
Optimism is rising that the US Congress may reach a deal to avert a US debt default on October 17 after Republicans said they would propose legislation for a short-term debt limit increase. The offer is conditional on the Democrats agreeing to talks to resolve a budget impasse, which they have previously refused to do.
"There's some optimism that the deal is going to go through so it is a risk on move and a lot of people fund themselves by borrowing in yen and investing in the kiwi, so that's why the kiwi ends up," said Tim Kelleher, head of institutional FX sales in New Zealand at ASB Bank.
"It's the yen crosses more than anything else that were higher."
Kelleher said the kiwi is likely to continue to trade between 82 US cents and 83.50 cents today.
Some US government services have been shut down since Oct. 1 after US politicians failed to agree on the budget because Republicans wanted changes to President Barack Obama's healthcare law. Obama has previously said he'll negotiate on fiscal and health-care issues only after the debt ceiling is raised and the government shutdown ends.
The Republican plan would push off the debt limit through November 22.
Still, ASB's Kelleher said there was still more negotiation to be done, with the latest proposal offering no guarantee of an end to the government shutdown and a temporary solution to the debt limit.
"It's just kicking the can down the road for another six weeks," Kelleher said.
In New Zealand today, a report on food prices for September is scheduled for release at 10:45am and a Reserve Bank report on non-resident bond holdings for September is due out at 3pm.
The New Zealand dollar slipped to 87.61 Australian cents at 8am in Wellington from 87.74 cents yesterday after a report yesterday showed the Australian unemployment rate unexpectedly dropped to 5.6 per cent from 5.8 per cent.
The kiwi edged up to 51.87 British pence from 51.83 pence yesterday after the Bank of England kept monetary policy unchanged. The local currency rose to 61.22 euro cents from 61.15 cents yesterday.