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The New Zealand dollar continued its acceleration to hit a new record against the US dollar yesterday as overseas investors' appetite for risk increased, including their exposure to higher-yielding currencies.
To a backdrop of calmer stock markets around most of the world, excepting several Asian bourses, the kiwi hit a new 26-year post-float high of US85.69c yesterday.
Investors have been jittery in recent weeks with the escalation of the sovereign debt turmoil in Europe and also flailing talks over a proposed increase to the $US14.29 trillion ($NZ16.69 trillion) US federal debt ceiling by August 2, which without an increase could see the United States default on its debt payments.
However, negotiations on lifting the ceiling are now being seen by investors to be progressing favourably.
The US dollar cut losses against the euro and rose against the yen after President Barack Obama earlier this week gave his support to a bipartisan proposal for a new deficit-reduction plan aimed at averting a US debt default.
Mr Obama said the ambitious budget plan brought forward by a "gang of six" group of senators could provide new ideas for breaking the impasse in Congress over raising the federal government's credit limit by the August 2 deadline.
Earlier in the week, fleeing investors from Europe underpinned a return to safe-haven gold, which continuously over 11 days pushed the global spot price beyond $US1600 for the first time, to trade at $US1605. It had since eased back to $US1584.
On Tuesday, the NZX reversed 11 days of decline, with the NZX 50 index gaining 0.2%, but on low turnover of just $67 million.
Craigs Investment Partner broker Chris Timms said so long as good news kept flowing out of the United States it was likely investors would continue to take on riskier currencies and in the short term the kiwi could be driven higher.
Strong global commodity prices were driving growth and also inflation in New Zealand, which in turn could see interest rates hiked by the Reserve Bank, in turn attracting more investors.
"[However] it's still a fragile and volatile market out there, and all this is dependent on what is happening in the United States," Mr Timms cautioned.
Forsyth Barr broker Peter Young said US stocks climbed overnight, after IBM's profit topped estimates and President Barack Obama endorsed a plan to cut the federal deficit.
The Standard and Poors 500 Index and Dow Jones gained by almost 1.7% apiece, while the Nasdaq was up 2.2%, he said.
"Stock in the United Kingdom advanced for the first time in four days following positive economic reports from the US regarding new housing, and as corporate earnings continued to track ahead of analysts' expectations," he said.
The US markets had gained momentum late in the day after President Barack Obama suggested progress was being made towards a $3.75 trillion deficit reduction deal centred around entitlement reform.
"Stocks are starting to bounce at least for the time being, with people wagering that there will be a resolution on the debt ceiling," said Wayne Kaufman, chief market analyst at John Thomas Financial, New York.
- Additional reporting, Reuters