KEY POINTS:
Foreign bonds worth more than $10 billion will mature in New Zealand this year - but they are unlikely to bring about the long-awaited fall in the kiwi dollar unless the Reserve Bank cuts interest rates at the same time.
The largest maturity schedule for uridashis, eurokiwis, and other global bonds denominated in New Zealand dollars had widely been expected to start bringing the local currency down as investors took their money out of New Zealand when their bonds matured.
The Reserve Bank said in its last financial stability report that a sudden drop in uridashi and eurokiwi investments in New Zealand could threaten the country's financial stability by increasing pressure on exchange and interest rates and creating uncertainty.
Last week, rumours that a large amount of planned uridashi issuance was not readily selling to Japanese investors temporarily added to bearish New Zealand dollar sentiment.
But Royal Bank of Canada currency strategist Sue Trinh downplayed the rumours, saying they were likely a short term phenomenon.
"I suspect it was likely to be related to the fact that it's financial year end in Japan where the bias is to repatriate funds to Japan," she said.
After April, retail investors would again be interested in looking overseas.
The New Zealand dollar closed at US71.26c in New York trade during the weekend.
It has risen from below US68c at the beginning of March after Reserve Bank Governor Alan Bollard lifted the official cash rate to 7.5 per cent.
Late last year, before another period of heavy maturities, some believed investor reluctance to roll those investments over or invest in new issues could send the kiwi dollar sprawling.
But rollovers and investment in new issues easily matched maturities, because New Zealand's high and rising interest rates continued to give uridashi and eurokiwi investors better returns than domestic investments.
Trinh and other currency experts say that remains the case.
Westpac currency strategist Michael Gordon said the maturity schedule had not been a concern so far.
Bonds worth about $3.3 billion matured in the first quarter, but fresh issues and rollovers had matched that.
"From about August onwards for the rest of the year could be more of a challenge," he said.
"We see a couple of months with upwards of $3 billion maturing in a month and because we've never been through that before, I can't say for certain that you're going to see the full amount rolled over or that you're not going to see an impact on the currency."
Gordon said uridashis and eurokiwis were not the major driver of the currency.
"But if you did get this increase in redemptions at the same time that you had interest rates starting to ease here or starting to rise in Japan for example, the combination of those would weigh on the currency."
Similarly, Trinh said that with about $3.6 billion in maturities in August and $3.9 billion in October, the New Zealand dollar had never faced such a huge maturities schedules.
"It will be interesting to see whether it will be able to generate enough fresh issuance to offset that, but again if you look at the conditions for urdidashi demand it still remains very favourable," she said. "The kiwi should be able to weather the storm."
With interest rates remaining high in New Zealand "the landscape for continued uridashi demand remains very positive", said Trinh.
The Bank of Japan has an official interest rate of 0.5 per cent and has indicated it is unlikely to aggressively increase rates in the foreseeable future.
The ANZ's head of proprietary trading and investor sales, Tony Allen, believed Japanese and European investors would continue to be happy to roll over their positions.
That would probably continue to be the case, "until our yield differential disappears, GDP slows and recent rises in mortgage rates cause our economy to slow down sufficiently that the market starts pricing in easings into our yield curve".
