NZ dollar rises into month-end as greenback's rally takes a pause

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The New Zealand dollar rose as the US dollar index extended its slide from a 16-year high, with the greenback's direction said to be driven by month-end grooming by fund managers and a market preparing for US payrolls data on Friday along with what's expected to be a hike from the Federal Reserve meeting on December 14.

The kiwi dollar rose to 71.44 US cents as at 5pm in Wellington from 70.69 cents late yesterday. The trade-weighted index gained to 78.48 from 77.70.

The foreign exchange market didn't react much to the Reserve Bank's financial stability report today, which gave the nation a good grade while citing dairy farm debt and housing credit as areas of risk for the economy. The US dollar index has declined since reaching a 16-year high last week, pausing a rally that was driven by optimism Donald Trump's US presidential victory would stoke US growth.

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"Markets are consolidating," said Philip Borkin, senior economist at ANZ Bank New Zealand. "The kiwi had come off quite a lot on the back of the US dollar story" but the fundamentals for the domestic economy haven't deteriorated, he said.

He said the stability report could be read as a sign the Reserve Bank is reluctant to cut interest rates again "but I don't think markets really reacted to the financial stability report".

Traders are also awaiting a key meeting of the Organization of Petroleum Exporting Countries in Vienna tonight, with prospects of lower oil prices if the group fails to agree on production cuts, weighing more broadly on commodities and so-called commodity currencies such as the Canadian, Australian and kiwi dollars. Meanwhile, an NZ Institute of Economic Research report said the New Zealand economy is going to continue to benefit from booming tourism, migration and construction, keeping annual growth at more than 3 percent a year.

The kiwi rose to 57.24 British pence from 57.03 pence late yesterday. It gained to 95.56 Australian cents from 94.68 cents, jumped to 80.38 yen from 79.27 yen and rose to 4.9169 yuan from 4.8720 yuan. The local currency gained to 67.21 euro cents from 66.72 cents.

The two-year swap rate rose 2 basis points to 2.24 percent and the 10-year swap rate rose 6 basis points to 3.23 percent.