The New Zealand dollar rose today as investors felt more comfortable with the global economic outlook as they anticipated China will stimulate its economy more.
Chinese Premier Wen Jiabao, who is expected to unveil a new stimulus package, said substantial government spending was needed to counter the global financial crisis.
This bolstered global stock markets and turned the trend in the NZ dollar round.
The NZ dollar fell to US48.95c yesterday in the wake of weaker than expected Australian growth data. But it rose to US50.80c by this morning on the Chinese news.
By 5pm the NZ dollar was US50.20c.
"There was a natural bounce of the low because that low was over stretched but the stimulus effect pushed it from US49.50c all the way through to US50.80c," said Imre Speizer, senior market strategist at Westpac.
The NZ dollar edged down against its Australian counterpart after recovering from near seven-month lows on the back of weak Australian gross domestic product data yesterday.
During Wednesday night the kiwi reached around A78.35c but then slipped to A79.05c by 5pm today.
That cross is expected to weaken if New Zealand cuts interest rates and Australia continues to hold them.
However, the market is indicating that investors think the Reserve Bank of New Zealand will not cut by as much next Thursday as first thought.
Mr Speizer said overnight index swaps were a good indicator of sentiment for the rate cut. About a week ago these swaps were indicating an 82-point cut and today they had dropped to 65. This was like a probability indicator as the bank sets the official cash rate in quarter point intervals.
The NZ dollar hit a week-high against the euro above 0.4015 early today, but was 0.3980 at 5pm from 0.3960 yesterday.
The kiwi was up against the yen to 49.85 at 5pm from 48.70 yen yesterday. The trade weighted index was 51.91 from 51.46 yesterday.
