Dollar advances as commodity-linked currencies buoyed by improved sentiment

The New Zealand dollar edged up along with other commodity linked currencies, with gains limited by a stronger US dollar buoyed by better economic data.

The kiwi increased to 64.53USc at 8am in Wellington, from 64.35USc at 5pm yesterday. The trade-weighted index gained to 69.82 from 69.67 cents yesterday.

Investor sentiment improved after China's Shanghai Composite Index closed higher for the first time in six sessions with a 5.4% gain on the previous close. That bolstered the outlook for global growth and pushed up currencies linked to commodities such as the kiwi, and weakened safe haven currencies like the yen. The US dollar broadly strengthened after second-quarter gross domestic product was revised higher to an annual 3.7% rate, ahead of expectations for 3.2% and up from the previous estimate of 2.3%.

"There has been a notable turn in market sentiment overnight, assisted by upward revisions to US second quarter GDP growth," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "Given this backdrop, the US dollar has strengthened but the prize for best performers goes to the 'commodity-linked' currencies. 'Safe haven' currencies have underperformed.

"If general sentiment remains underpinned by further gains in Asian equity markets today, then the New Zealand dollar should remain supported."

BNZ said the kiwi has support at 64.20USc and faces resistance near 65.10USc. It expects the kiwi to trade down to 62USc by the end of the year, on the expectation the Federal Reserve will hike interest rates by the end of the year.

BNZ has pushed out its expected date for Fed hikes to December, from September.

Today, traders will be eyeing reports on Japanese and German inflation and UK second-quarter GDP. This weekend, the focus will be comments and speeches from the annual Jackson Hole meeting of central bankers in the US.

The New Zealand dollar slipped to 90.04Ac from 90.48Ac yesterday, advanced to 57.40 euro cents from 56.68 cents, increased to 41.86 British pence from 41.52p, rose to 78.08 yen from 77.16 yen, and gained to 4.1324 from 4.1242 yuan.

(BusinessDesk)