The New Zealand dollar may gain this week as rising equity markets and the power of Chinese demand to lift commodity prices help underpin positive risk sentiment Down Under.
The kiwi dollar recently traded at 83.03 US cents from 83.18 cents in New York trading on Friday. The currency has recovered from as low as 81.53 cents on Boxing Day. It may trade in a range of 81.80 cents to 84.70 cents this week, with a bias to the upside, according to a BusinessDesk survey of five traders and strategists.
The Standard & Poor's 500 Index closed at a five-year high on Friday, following a week in which politicians in Washington managed to avert the fiscal cliff. The 11th hour agreement provides a temporary reprieve for the world's biggest economy, with the next battle set for February when the Congress needs to agree to lift the US$16.4 trillion debt ceiling.
Closer to home, the price of iron ore has climbed about 70 per cent in the past four months, driven by renewed demand from China, adding to positive sentiment for commodity linked currencies such as the Australian and New Zealand dollars. China is Australia's biggest export market and New Zealand's second-largest.
"More evidence of China's recovery will help Australian and New Zealand commodity prices and therefore the currencies," said Imre Speizer, senior markets strategist at Westpac Banking Corp. "We'll stay with this positive trend - in the week we're more likely to test the upside than the downside."