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NZ dollar gains after dairy prices rise

By AAP
07:40 AEST Wed Dec 7 2011
Kiwi dollar
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The New Zealand dollar gained after the largest rise in the dairy prices since July.

The kiwi dollar rose to 77.96 US cents overnight from 77.73 at 5pm on Tuesday.

Fonterra Co-operative's latest online milk auction showed average prices rose 2.6 per cent, the highest level since July.

That underpinned support for the kiwi dollar and bolstered confidence New Zealand's biggest export earner is set to enjoy elevated prices for some time.

"This concurs with our view that prices are likely peaked early this year but are now stabilising," said Kymberly Martin, market strategist at Bank of New Zealand.

It comes ahead of Thursday's Reserve Bank meeting, where Governor Alan Bollard is tipped to keep the benchmark rate on hold at a record-low 2.5 per cent, and push out the expected track of future interest rate rises.

The Reserve Bank of Australia on Tuesday cut the target cash rate a quarter-point to 4.25 per cent, with Governor Glen Stevens saying Europe's sovereign credit woes and banking problems are starting to weigh on Asian economies, and heightening the threat of a global economic slowdown.

Peter Cavanaugh, senior client adviser at Bancorp, said "over the next 24 hours the kiwi is likely to be watching the world and waiting for the Reserve Bank," as it continues to trade in a tight range.

The kiwi rose to 58.22 euro cents from 58.13 cents on Tuesday.

It was little changed at 60.59 yen from 60.51 yen and dropped to 76.11 Australian cents from 76.17 cents.

The trade weighted index rose to 69.01 from 68.91.