Dollar gains as yuan rate fixed higher

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The New Zealand dollar regained ground after China fixed the yuan reference rate marginally higher after eight straight days of cuts, easing concerns that the People's Bank of China sees a weaker economy than many in the markets.

The kiwi traded at US66.44c as at 5pm yesterday, from US66.22c at the start of the day and from US66.37c late on Thursday.

The local currency rose to 4.3789 yuan from 4.3744 yuan on Thursday.

The PBOC set the daily fixing for the yuan at 6.5636 per US dollar, 0.02 per cent up from Thursday, having slashed the reference rate by 1.4 per cent over the past eight days.

The Chinese central bank's move to lower the band for its currency has stoked concern the world's second-largest economy may be weaker than expected, which has driven down stock markets and growth-linked currencies such as the kiwi, which is heading for a 2.8per cent weekly decline against the greenback.

"The kiwi has had a massive selloff this week, much of it driven by China and the weakening of the Chinese yuan," said Angus Nicolson, market analyst at IG Markets in Melbourne.

"The fact that we're seeing the Bank of China weaken its currency at a record rate makes people think that economy is far worse than feared," he said.

While the kiwi spiked higher when the yuan fixing was announced, it subsequently pared its gains "partly because global investors are pretty unsure whether China is intent on further weakening the yuan", Nicolson said.

The kiwi could fall back to its lows of last September of around US64c, he said.

The kiwi rose to 78.57 from 78.45 on Thursday, having earlier fallen as low as 77.44, the lowest since October 5 last year. It was little changed at A94.19c from A94.16c on Thursday and was lower at 61.07 euro cents from 61.35c.

It traded at 45.44 British pence from 45.37p. The trade-weighted index was little changed at 73.06 from 73.01 late yesterday.