The New Zealand dollar rose as investors returned to more risk sensitive assets as fears over an escalation of tension in Ukraine proved unfounded and markets were relatively stable after China widened the trading band of its currency.
The kiwi increased to 85.67 US cents at 8am in Wellington from 85.32 cents at 5pm yesterday. The trade-weighted index gained to 79.92 from 79.70 yesterday.
Risk sensitive assets such as equities and the New Zealand dollar advanced after investors were becalmed by the moderate diplomatic reaction following Crimea's vote to join Moscow over the weekend as the US and European Union imposed sanctions. The People's Bank of China doubled the yuan's trading band, seen as a move to support the world's second-biggest economy amid slowing exports.
"Markets breathed a collective sigh of relief last night as fears of Crimea and China volatility failed to materialise," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck said in a note. "Safe havens Japanese yen and Swiss franc depreciated, while the risk sensitive New Zealand dollar and Australian dollar appreciated.
The local currency is likely to maintain its strength today as there is little fundamental news to change market sentiment, ANZ said.
