The New Zealand dollar rose to a five-week high overnight as weaker-than-expected service sector indicators in the US and UK raised questions about how quickly those economies will return to normal monetary policy, and stoked investors' appetite for risk-sensitive assets.
The kiwi touched 65.30 US cents, the highest since Aug. 25, and traded at 65.04 cents at 8am in Wellington from 64.65 cents yesterday. The trade-weighted index advanced to 70.62 from 70.26 yesterday.
Service sector PMIs in the US and UK missed expectations, weighing on the expected pace and timing for their respective central banks to start raising interest rates. The prospect of lower interest rates fuelling investors' demand for assets delivering higher yields, with equity markets up on both sides of the Atlantic and pushing commodity prices higher. That helped lift currencies linked to commodity price movements, such as the New Zealand, Australian and Canadian dollars.
"It was a bit of a risk-on session with weaker US ISM service sector data and a weaker UK PMI service sector - that's thrown the normalisation theme for the time being and caused a broad-based asset rally," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "If the kiwi's strength persists, and that's a large if, it would be the first time since July last year it's broken back up into a range."
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