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NZ dollar rises as yield entices investors

NZ NewswireNZ Newswire 4/07/2016 Paul McBeth

The New Zealand dollar rose to a new 13-month high on a trade-weighted basis as the relatively high yield on offer continues to attract investors.

The trade-weighted index climbed as high as 77.15, and was at 77.10 at 8am in Wellington from 76.65 on Monday. The kiwi gained to 72.30 US cents from 71.77 cents, with US markets closed for the Independence Day holiday.

The Reserve Bank's 2.25 per cent official cash rate stands out in a world where many central banks are still running near-zero policies and may inject more stimulus to counter the volatility stoked by the UK's vote to leave the EU.

The yield on New Zealand's 10-year government bond is near a record low at 2.33 per cent, though still higher than the 1.46 per cent yield on US Treasuries and negative yields on European and Japanese bonds.

"The forthcoming Brexit negotiations with the EU and the wave of elections in Europe next year (The Netherlands, France, Germany) have raised political risk in Europe.

"We expect continued portfolio flows out of the region, intensifying the hunt for yield and safety/remoteness," ANZ's David Croy said.

"The mantra seems to be, 'if in doubt buy kiwi' again. The market's love affair with yield and all-things-not-Europe remains supportive."

The New Zealand Institute of Economic Research's quarterly survey of business opinion is due out as are Quotable Value figures on national house prices.

After that, dairy prices are expected to rise by between 3 per cent and 5 per cent at the GlobalDairyTrade auction.

The kiwi was little changed at 95.91 Australian cents from 95.83 cents ahead of the Reserve Bank of Australia's policy review where the target cash rate is expected to remain at 1.75 per cent after an inconclusive federal election.

The local currency climbed to an 18-month high against the Chinese yuan, trading at 4.8183 yuan at 8am from 4.7799 yuan, it rose to 74.15 yen from 73.70 yen, gained to 54.39 British pence from 54.02 pence and advanced to 64.83 euro cents from 64.44 cents.

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