By Paul McBeth
Dec. 28 (BusinessDesk) - The New Zealand dollar gained in local trading on optimism US politicians will be able to set aside partisan differences and cut a deal on the US$600 billion in Federal tax increases and spending reductions with a vote set for Sunday.
The kiwi rose to 82.11 US cents at 5pm in Wellington from 81.83 cents at 8.30am and 81.89 cents yesterday. The trade-weighted index rose to 73.76 from 73.53 yesterday.
The US House of Representatives will hold a session on Sunday in a last ditch effort to avert the fiscal cliff, which comes into effect on Jan. 1. Congress majority leader and Republican Eric Cantor announced the vote on Twitter after Senate majority leader and Democrat Harry Reid said a deal was looking unlikely.
Politicians don't have to reach a compromise before the New Year and can amend legislation after it kicks in, though similar stalling tactics on the debt-ceiling debate last year saw Standard & Poor's downgrade America's credit rating.
"There's a growing risk one of the credit agencies will downgrade them regardless," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. The kiwi had "quite a strong rally and bounced off its low on the back of the supposed meeting of the politicians."
Kelleher said the kiwi is finding buyers at 81.50 US cents and sellers at 82.50 cents.
The kiwi extended gains against the yen and is headed for a 2.2 percent weekly gain against Japan's currency as investors prepare for the new Shinzo Abe-led government to take a more active role in the economy. The currency rose to 70.92 yen from 70.30 yen yesterday.
The kiwi was little changed at 79.09 Australian cents from 79.07 cents yesterday, and traded at 61.99 euro cents from 61.93 cents. The local currency increased to 50.96 British pence from 50.80 pence yesterday.