NZ dollar gains as rally in stocks show sell-off overdone

File photo / NZ Herald

The New Zealand dollar gained with equity markets across Asia on speculation investors who sent shares lower last week were too gloomy about the prospects for global growth.

The kiwi rose to 79.45 US cents from 79.22 cents at the start of the day and from 79.12 cents in late New York trading on Friday.

The trade-weighted index rose to 77.15 from 76.84.

Japan's Nikkei 225 Index rose 3.5 percent in afternoon trading, while Australia's S&P/ASX 200 Index gained 1 percent and New Zealand's NZX 50 rose 1 percent. Among developments to soothe investors, a European Central Bank official reportedly said it will begin purchases of covered bonds soon to support the weak regional economy.

"Equity markets are a sea of green at the moment," said Imre Speizer, senior market strategist at Westpac Banking Corp. "The risk-on vibe has persisted a bit."

Speizer sees the kiwi rising this week, making him an outlier in BusinessDesk's weekly currency survey, which saw the currency falling on expectation government figures this week will show inflation was tame in the third quarter.

New Zealand inflation probably accelerated 0.5 percent in the third quarter, for an annual rate of 1.1 percent, slowing from a 1.6 percent annual rate in the previous quarter, ASB said. That would put the measure near the bottom of the Reserve Bank's 1 to 3 percent band, and below its 2 percent target, weakening the case for governor Graeme Wheeler to raise interest rates further following four hikes so far this year.

Speizer said weak inflation data may weigh on the currency when it is released on Thursday but he sees the New Zealand dollar gaining this week as the greenback comes under pressure. The kiwi didn't move much after a survey showed improving activity in the services sector and a separate survey showed consumer confidence fell to a 12-month low in October.

The kiwi rose to 85.26 yen from 84.15 yen on Friday. It traded at 90.55 Australian cents from 90.60 cents on Friday and gained to 62.27 euro cents from 61.94 cents. It was little changed at 49.30 British pence from 49.31 pence on Friday.