July 8, 2014 / 11:46 PM / 3 years ago

FOREX-New Zealand dollar pops in otherwise colourless market

* NZD hits fresh three-year highs, eyes post-float peak

* Fitch changes outlook on NZ ratings to positive from stable

* Dollar continues to trim payrolls-inspired gains

* China inflation, Fed minutes and ECB’s Draghi all on the menu

By Ian Chua

SYDNEY, July 9 (Reuters) - The New Zealand dollar held on to gains early on Wednesday, having scaled a fresh three-year peak on the prospect of a sovereign rating upgrade, contrasting with other major currencies which shuffled in familiar ranges.

The kiwi last traded at $0.8790, after rising as far as $0.8806, bringing into focus its post-float high around $0.8840 set in August 2011.

It broke above a $0.8714-0.8795 range seen in the past week or so after Fitch revised its outlook on New Zealand’s AA-rating to positive from stable, citing progress in the country’s fiscal consolidation.

“This is a clear positive for the NZD in both the near and medium-term,” said Annette Beacher, head of Asia Pacific research at TDSecurities.

“A shift to a positive outlook does not necessarily guarantee a credit upgrade to AA+, but the odds have shifted decisively in that favour.”

To be sure, the kiwi has been supported by its yield advantage, which is set to grow even bigger later in the month when the Reserve Bank of New Zealand is likely to hike the 3.25 percent cash rate by another quarter point.

The U.S. dollar, meanwhile, nursed small losses after a fall in Treasury yields tampered demand for the greenback. It has lost roughly half of the gains made last Thursday on the back of solid nonfarm payrolls.

“The price action thus far seems to be a reversal of moves from last week following the strong jobs report,” noted analysts at JPMorgan.

Against the yen, the greenback slipped to a near one-week low of 101.48 yen, while the euro drifted up to $1.3612 . That saw the dollar index soften slightly to 80.171.

The common currency also lost a bit of ground on the yen, reaching one-week lows at 138.10.

The euro largely shrugged off remarks from European Central Bank Executive Board member Sabine Lautenschlaeger that played down the need for asset-buying stimulus.

Lautenschlaeger, a former Bundesbank vice president, said the ECB should only embark on a broad asset-buying programme in the event of an emergency, such as the immediate prospect of deflation.

Both sterling and the Canadian dollar continued to consolidate recent gains, with the pound still not far from a six-year high despite an unexpected slide in British industrial output.

Sterling bought $1.7130, while the loonie was at C$1.0678 per U.S. dollar.

Overall, the session in New York was pedestrian and made even more subdued with many eyes glued to the television for the Germany-Brazil semi-final World Cup match that saw Germany thrash Brazil 7-1.

That means another quiet start for Asia, at least until 0130 GMT when Chinese inflation data is released.

Any unexpected acceleration in price pressure will probably be negative for risk appetite, giving the safe-haven yen a lift.

Later in the day, minutes of the Federal Reserve’s latest policy meeting and speeches by ECB officials, including President Mario Draghi, will be closely watched. (Editing by Eric Meijer)

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