NZ dollar gains as Russian rate hike, upbeat European data sap greenback

The New Zealand dollar gained in volatile markets after Russian policymakers hiked interest rates to shore up a tumbling ruble and European data beat expectations, sapping demand for the US dollar ahead of the Christmas and New Year holiday period.

The kiwi rose to 77.85 US cents at 8am in Wellington from 77.45 cents yesterday. The trade-weighted index advanced to 78.23 from 77.90 yesterday.

Russia's central bank unexpectedly hiked interest rates to 17 percent from 10.5 percent in an effort to stop the nation's currency extending its decline as falling oil prices weigh on the increasingly isolated nation's economy. That heightened volatility in currency and interest rate markets, though didn't spread into equities. That weighed on the greenback, which also faced pressure from upbeat manufacturing indicators in Europe.

"I'd describe it as a volatile night - equity markets are still up though, so it's not feeding into a worldwide contagion," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand in Auckland. "US dollar positions are being liquidated and the New Zealand dollar is gaining on that. We do have pretty decent real yield."

ANZ expects the kiwi will trade between 77.30 US cents and 78.50 cents today.

The latest GlobalDairyTrade auction showed a 2.4 percent increase in the average winning price across all products with whole milk powder, the biggest product sold by volume, up 1.4 percent to US$2,270 per tonne.

Tuck said the underlying result was softer than the headline indicated, with declines of up to 11 percent in some later dated whole milk powder contracts.

New Zealand's third quarter balance of payments is due for release today, with economists predicting an annual current account deficit of $6.58 billion, widening from a shortfall of $5.8 billion in the second quarter.

That comes ahead of tomorrow's Federal Open Market Committee meeting, with US Federal Reserve policymakers expected to provide a clearer path to interest rate increases next year.

The local currency gained to 91.30 yen at 8am in Wellington from 90.91 yen yesterday, and climbed to 94.71 Australian cents from 94.07 cents. It edged up to 62.27 euro cents from 62.15 cents yesterday, and was little changed at 49.43 British pence from 49.47 pence.