New Zealand Dollar Gains as Optimism Hits Forex Market

The New Zealand dollar advanced today, extending its gains from yesterday, as Forex market participants felt a bit more optimistic about Europe and favored higher-yielding assets. The resulting rally of the global stocks was also beneficial to the currency.

The European Central Bank will announce the results of the first tranche of its unlimited three-year loans today. Economists think that banks will use the loaned money to buy the sovereign debt. The Standard & Poor’s 500 Index rose as much as 3 percent yesterday, posting its biggest advance this month. The MSCI World Index of stocks gained 2.5 percent, while MSCI Asia Pacific Index added 1.8 percent.

Traders should be cautious, though, as the fundamentals haven’t improved that much to justify the excessive optimism. If anything, the economy of New Zealand showed signs of contraction as the current account deficit expanded by NZ$0.7 billion to NZ$2.7 billion in the third quarter from the previous quarter.

NZD/USD climbed from 0.7678 to 0.7710 and NZD/JPY went higher from 59.77 to 59.92 as of 4:22 GMT today. EUR/NZD went down from 1.7025 to 1.7000.

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