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NZ dollar heads for 1.6% weekly gain

NZ NewswireNZ Newswire 9/09/2016 Jonathan Underhill

© Mark Tantrum/Getty Images The New Zealand dollar is heading for a 1.6 per cent weekly gain as positive signals for the domestic economy contrast with weaker US data to keep the currency near a 16-month high.

The kiwi traded at 73.97 US cents as at 5pm in Wellington, down from 74.57 cents late yesterday but up from 72.99 cents a week ago. The trade-weighted index fell to 78.37 from 78.84 on Thursday, to remain above the average 76 level the Reserve Bank has projected for the third quarter.

Government figures next Thursday are expected to show the economy grew 1 per cent in the second quarter, the fastest pace since the first quarter of 2014 and up from a 0.7 per cent pace in the first three months of this year.

That will come on top of a surge in prices of dairy products, which had been the weak spot in an economy being propelled by record migration and tourism and a bubbling property market.

By contrast, the US ISM non-manufacturing survey for August fell to 51.4, the lowest level since February 2010, and followed the previous week's ISM manufacturing survey, which fell below 50, a sign of contraction.

"When you get those factors together, you've created a bid situation for the kiwi," said Graham Parlane, private client manager at OMF.

"It's hard to see the kiwi being anything but well supported despite these lofty levels."

Parlane said given the gains in dairy prices, farmers may be looking at a payout of $5.75 per kilogram of milk solids plus 60 cents earnings per share in the current season, a total of $6.35 compared to Fonterra's latest forecast of $5.25 to $5.35 including the dividend.

The currency fell to 65.60 euro cents from 66.30 cents on Thursday. The kiwi slid to 96.76 Australian cents from 97.12 cents and declined to 55.49 British pence from 55.88 pence. It traded at 75.52 yen from 75.73 yen and fell to 4.9374 yuan from 4.9721 yuan.

New Zealand's two-year swap rate rose 4 basis points to 2 per cent and 10-year swaps jumped about 9 basis points to 2.47 per cent.

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