New Zealand dollar soars amid improving investor sentiment

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The New Zealand dollar soared two U.S. cents overnight mostly before it became clear that Slovakia would sign off on the European region's bailout fund.

The kiwi dollar was at 79.78 US dollars at 8am, up from 77.88 cents at 5pm yesterday. It made significant gains around 9pm local time last night.

Dan Bell, a senior dealer at HiFX, said the extremely aggressive move higher came in the first two hours of London trading and the Australian dollar made a similar move, helping it rise 3.5 percent from its lows yesterday.

The rallies in the trans-Tasman currencies were much greater than the rallies on equity markets they have been tracking, and they occurred before reports that Slovakian politicians had brokered a deal to sign off on the Euro-zone's European Financial Stability Fund.

"I think market positioning has played a big part in this. The market was extremely short kiwi and Aussie and someone wanted to get back in," he said, referring to the currencies colloquially.

He said bits of pieces of economic data had been positive in major economies and the return of Chinese investors after the Golden Week holiday last week may have had an impact.

The euro also rose to US$1.3791from US$1.3580. It traded as high as US$1.3834, its highest level since Sept. 16.

On Wall Street the Dow Jones Industrial Average posted gains that put it into positive territory for the year as investors bet Slovakia will sign off on the Euro-zone's European Financial Stability Fund to help shore up the region's indebtedness.

The bet paid off when it was reported that Slovakian politicians had struck a deal to approve the measure later this week after an initial no vote brought the government down.

The bailout fund is driven by the larger nations in Europe and the hold up by the small eastern bloc nation that adopted the euro in 2009 was a bad look at a time when the euro's survival is being questioned.

The currency markets have been preoccupied with the direction of stock markets where concerns about the European debt crisis have dented bank stocks. The improvement in equity markets reduces risk aversion, a source of volatility in currency markets.

The Chicago Options Board Exchange's Volatility Index, known as Wall Street's 'fear gauge' fell 7.1 percent to 30.67, its lowest level since Aug. 4, about the time the United States' credit rating was downgraded.

A call by European Commission Jose Barroso for a co-ordinated approach for banks was also a positive factor.

The kiwi eased to 78.32 Australian cents from 78.63 cents yesterday and rose 61.65 yen to 59.73 yen. It rose to 57.92 euro cents from 57.23 cents yesterday and rose to 50.58 British pence from 50.04 pence yesterday.

The trade-weighted index rose to 70.05 from 69.01 yesterday.

- BusinessDesk