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NZ dollar gains with Wall St amid hedge-fund talk

NZ dollar gains with U.S. stocks, advance tempered by hedge-fund talk

By Paul McBeth

Oct. 23 (BusinessWire) – The New Zealand dollar advanced as stocks on Wall Street staged a late rally, though the advance was tempered by talk that a large hedge fund was planning to liquidate its holding of the kiwi currency.

Speculation a large NZD/USD position would have to be liquidated circulated markets yesterday and carried into the New York trading session, making traders wary of pushing the kiwi higher. Still, investors’ appetite for higher-yielding, or riskier, assets persisted, with stocks on Wall Street climbing on more positive earnings surprises. Burger chain McDonald’s Corp. and insurer Travelers Cos. third quarter results beat analysts’ expectations, and underpinned a 1.5% gain on the Dow Jones Industrial Average.

“There was a bit of a rumour about a hedge fund that is being forced to liquidate a large kiwi dollar position and while it hasn’t been confirmed, people are wary about taking it up further,” said Mike Jones, strategist at Bank of New Zealand. “The kiwi’s still up around 2.5% on the week – it just underperformed overnight.”

The New Zealand dollar gained to 75.85 U.S. cents from 75.26 cents yesterday, and advanced to 67.71 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 67.36. It increased to 69.23 yen from 68.69 yen yesterday and edged higher to 81.81 Australian cents from 81.68 cents. It was little changed at 45.64 pence from 45.56 pence yesterday and gained to 50.48 euro cents from 50.29 cents.

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Jones said the currency will probably trade between 75.20 U.S. cents and 76.30 cents today, as the market waits for the German Ifo business survey and U.K. third-quarter gross domestic product data out in Europe today.

Risk appetite is around 10 percentage points above its average, according to BNZ’s index, and “the kiwi-yen cross is the ultimate barometer of that,” Jones said. The kiwi has surged 53% against the yen from a low of 45.27 yen in February and is at its highest level since October last year.

Imre Speizer, markets economist at Westpac Banking Corp. tipped the New Zealand dollar to push higher against the yen this week, saying the Japanese economy was “comatose” and not joining in the global recovery.

Federal Reserve Chairman Ben Bernanke issued guidelines for executive pay at banks to prevent the kind of risk-taking that caused the financial crisis last year, saying “compensation practices at some banking organisations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability.”


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