NZ dollar continues its climb

The New Zealand dollar yesterday defied another blast of bad economic news and closed near a seven-month high on the back of strong demand from international investors.

Worse-than-expected August trade figures caused a short-lived fall from a seven-month high of US67.24c, but the kiwi quickly resumed its upward trend. It closed on US66.90c, up on Monday's close of US66.76c.

International buyers interpreted an increase in the import of consumer goods as raising the chance that Reserve Bank Governor Alan Bollard would increase interest rates again before the end of the year, said Deutsche Bank's Sydney-based FX strategist John Horner.

New Zealand's yield advantage was actually increasing, which was providing huge demand for the currency, he said.

The US bond market was now beginning to price in the possibility of an interest rate cut early next year. That, coupled with expectations that New Zealand interest rates might rise again, was causing the market to see a wider differential.

The New Zealand dollar has risen more than 10 per cent since dipping below US60c in late June.

"Other currencies are relatively stable, so what we have is the kiwi moving out on its own," said Bancorp Treasury Services director Jon Clarke.

In fact, New Zealand was now out on its own both in terms of currency strength and in terms of the tone of its Reserve Bank Governor, he said.

While the local market might pay attention to details of the economic data, the only message international investors were hearing was that our interest rates were not coming down soon.

"The current account and trade figures will no doubt come to be significant at some point," Clarke said.

All eyes would now be on Friday's GDP data. If they registered higher than the Reserve Bank's expectations, fuelling expectation of a rates rise, that could send the dollar even higher.