Appetite for risk drives New Zealand dollar higher

The kiwi traded at US72.66c at 5pm from US72.56c at 8am. Picture / 123RF

The New Zealand dollar gained as new records on Wall Street spurred a global rally in equity markets and stoked investors' appetite for other risk-sensitive assets.

The kiwi traded at US72.66c at 5pm from US72.56c at 8am, and up from US72.54c on Friday in New York. The trade-weighted index was at 74.85 from 74.93.

Stocks across Asia gained, with Hong Kong's Hang Seng up 1 per cent in afternoon trading, as new records on Wall Street's three major indices - the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 - stoked investor demand for risk-sensitive assets such as commodities and currencies linked to the price of raw materials.

"It's a world where risk assets are doing well. The global economy is in a big synchronised upswing and people are pretty positive and the New Zealand dollar typically performs very well in that environment and the US dollar doesn't," said ANZ Bank New Zealand senior economist Phil Borkin.

While the kiwi is benefiting, Borkin underscored "it's much more a weaker US dollar story rather than anything NZ dollar related".

He noted the kiwi dipped as local government figures showed the food price index fell 0.2 per cent on a seasonally adjusted basis in December versus the prior month.

"There was a bit of softness there, so perhaps people are re-assessing their views on the fourth-quarter CPI," said Borkin.

Statistics New Zealand will publish the inflation data on January 25.

Still, that weakness was short-lived, and Borkin said the kiwi immediately popped back towards US73c and "that seems to be where the bias is at the moment".

Investors will be watching for tomorrow's fourth-quarter survey of business opinion from the New Zealand Institute of Economic Research to see if confidence remains weak.

A seasonally adjusted net 7 per cent of firms surveyed in September anticipated better economic conditions in the coming year versus 17 per cent in the June quarter, as uncertainty around the election sapped business confidence.

Borkin said this week's dairy auction and the ANZ commodity price index will also be watched.

"There are certainly a few things that could throw it around but the biggest theme is the weaker US dollar story and positive risk appetite. It would take a lot for the domestic data to sway the market."

The kiwi was at 59.55 euro cents versus 59.41 euro cents from the New York close Friday. It traded at A91.49c from A91.60c on Friday in New York and fell to 4.6666 Chinese yuan from 4.6821 yuan.

The currency was unchanged at 80.45 yen from Friday and traded at 52.88p from 52.76p.

New Zealand's two-year swap rate rose 2 basis point to 2.21 per cent while the 10-year swap rose 3 basis points to 3.22 per cent.