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Kiwi up on 'hard Brexit' fears

NZ Newswire logoNZ Newswire 9/01/2017 Paul McBeth

The New Zealand dollar has risen to a two-month high against the British pound after the UK's currency was sold off on concerns about the nation's ability to access the single European market once it leaves the European Union.

The kiwi rose as high as 57.80 British pence, trading at 57.72p as at 8am on Tuesday from 56.82p on Monday. It rose to US70.19 cents from US69.57c.

Britain's pound dropped 1 per cent against the greenback after UK Prime Minister Theresa May told Sky News the country would secure control of its border once it left the EU and then negotiate "the best possible trade deal", stoking fears among investors that May is willing to cede access to the region's single market.

She later talked down how her comments had been interpreted, saying the EU exit meant the relationship will have to change.

"On Sunday, UK PM May was quoted as saying that Brexit negotiations were about 'getting the right relationship, not about keeping bits of membership'," BNZ market strategist Kymberly Martin said in a note.

"Consequently, renewed concerns of a 'hard Brexit' likely contributed to the weaker GBP at the start of the week."

On Tuesday morning, the kiwi gained against the greenback as yields on US 10-year Treasuries fell 5 basis points to 2.37 per cent, having soared since US president-elect Donald Trump's victory in the November 8 election.

Trump's expansionary fiscal policies and tax reform are seen as encouraging the Federal Reserve to hike interest rates more aggressively this year, which has renewed demand for the greenback in recent months.

The kiwi increased to 95.34 Australian cents from A95.17c on Monday and rose to 4.8677 Chinese yuan from 4.8231 yuan. It was little changed at 81.59 yen from 81.68 yen and rose to 66.44 euro cents from 66.09c. The trade-weighted index advanced to 77.80 from 77.31.

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