NZ dollar gains as risk indicators improve

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The New Zealand dollar rose, ending a five-day decline, as traders' risk appetite picked up even though the US Federal Reserve's policymakers' meeting and key US labour market data due out may yet indicate a stronger US economy.

The kiwi dollar rose to 69.18 US cents at 5pm in Wellington from 68.56 cents late yesterday. The trade-weighted index rose to 74.99 from 74.51.

The Chicago Board Options Exchange Volatility Index (VIX), known as Wall Street's fear gauge, fell as low as 9.56 overnight, the lowest since early 2007, and both the kiwi and the Australian dollars rose overnight, with the Aussie briefly adding to its gains after the Reserve Bank of Australia kept its cash rate unchanged this afternoon, as expected.

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The Fed is also expected to keep its Fed funds target at 0.75 per cent to 1 per cent, having pencilled in two rate hikes later this year. Meanwhile, US non-farm payroll employment figures on Friday are expected to show the world's biggest economy added 210,000 jobs in April after an unexpectedly weak March.

"We've seen a few short-term risk-on flows," said Mitchell McIntyre, a dealer at HiFX. "But the trend is still certainly down in terms of the kiwi. The US dollar is still trending higher and commodity prices are still looking soft."

Little change is expected for dairy prices at tonight's GlobalDairyTrade auction although McIntyre said a poor auction could weigh on the kiwi if it has drifted back under 69 US cents by then. Whole milk powder prices have surged 25 per cent since early March.

Meanwhile, New Zealand labour market data is due out tomorrow and is expected to show employment growth in the first quarter and a strong participation rate of above 70 per cent.

The kiwi traded at 91.66 Australian cents from 91.62 cents late yesterday and rose to 4.7672 yuan from 4.7231 yuan. The local currency rose to 77.378 yen from 76.53 yen and gained to 63.37 euro cents from 62.94 cents. It rose to 53.63 British pence from 53.10 pence.

New Zealand's two-year swap rate edged up 2 basis point to 2.30 per cent, and 10-year swaps rose 2 basis points to 3.38 per cent.