The revaluation of the China's currency overnight has pushed the kiwi higher against the greenback, and while dealers expect it to go higher still during tonight's offshore sessions, the move should help the kiwi depreciate in the longer term.
The kiwi closed at US68.69c at 5pm in Wellington against its US68.06c close yesterday having traded in a US68.29c to US68.71c range.
The kiwi shot to a three week high at around US68.80c last night as the greenback weakened on news China had scrapped its US dollar peg in favour of a basket of currencies to manage the yuan. The resulting revaluation of the yuan -- a 2.1 per cent rise -- was unexpectedly small although it is regarded as a first step.
Before the yuan move, the US dollar had been weakening against major currencies after Federal Reserve chairman Alan Greenspan said sounded less optimistic than expected in his testimony to Congress on Wednesday.
At 5pm in Wellington the greenback was fetching 111.13 yen (112.54 at 5pm yesterday), the euro was at US$1.2174 (US$1.2169) and the aussie was buying US76.48c (US75.95c).
Meanwhile, Westpac currency strategist Johnathan Bayley said that following the kiwi's initial move higher it had traded, "pretty much sideways over the day".
An Auckland dealer agreed, saying "It's basically been dead quiet today".
However, "It just looks like there may be a bit more to come in this leg up," he said.
"I think it will potentially strengthen, maybe up to around the US69c level."
But Westpac's Mr Bayley believed the yuan move would eventually weigh on the kiwi.
"If the Chinese let their currency appreciate, the rest of Asia is going to be more willing to -- both in terms of market expectations and central bank behaviour.
"A more flexible Asian currency block means less upward pressure on the kiwi dollar when the US dollar trades lower again."
On its crosses, the kiwi was buying A89.81c (A86.92c), 0.5641 euro (0.5595), 39.19 British pence (39.01), 0.8821 Swiss francs (0.8738) and 76.30 yen (76.61).
Elsewhere, the TWI was at 69.27 (68.96) and the monetary conditions index at plus 970 (948).
On the money markets, 90-day bank bill yields were at 7.04 per cent (7.03), July 2009 bond yields were unchanged at 5.89 per cent, and April 2015s were at 5.83 per cent (5.76).
- NZPA
<EM>Currency:</EM> Kiwi trades higher on yuan revalue
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