The New Zealand dollar is heading for a 0.9 per cent weekly gain as increasing fears about the strength of the global economy prompted investors to wind back their greenback holding.
The kiwi rose to US66.84c at 5pm yesterday from US66.27c a week ago in New York. It traded at US66.84c at 8am and US66.69c on Thursday. The trade-weighted index increased to 72.56 from 72.35 on Thursday, and is heading for a 0.1 per cent weekly dip as greenback selling has fuelled demand for currencies such as Japan's yen.
The Chicago Board Option Exchange's Volatility Index, known as Wall St's "fear gauge", rose to 28.14, its highest level since August last year, as credit spreads around the world continue to widen on fears there may be a series of corporate defaults and global stock markets extend their slide this year.
Growing fears about the pace of economic growth have stoked speculation the Federal Reserve may raise interest rates on a lower and slower path.
"The big thing in global markets is this whole fear factor," said Sam Tuck, senior foreign exchange strategist at ANZ Bank in Auckland. "Long US dollars are still getting hurt as the markets de-risk, and that's supporting the kiwi at the moment."
Tuck said speculation that the New Zealand dollar was getting a boost from the nation's positive yield was probably a secondary consideration for traders who were more concerned about getting their capital back rather than their returns.
This is not an environment where people are worried about getting an extra half a per cent on their capital.
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Government data yesterday showed food prices rose 2 per cent in January, snapping five months of declines. Food prices account for about 17 per cent of the consumers price index, which has been tracking below the Reserve Bank's target band of between 1 per cent and 3 per cent for more than a year.
The kiwi increased to 75.46 from 75.22 on Thursday, and edged up to 4.3914 Chinese yuan from 4.3822 yuan. It declined to A93.78c from A93.98c on Thursday, and was little changed at 59.15c from 59.07c. It rose to 46.18 British pence from 45.86p.