The New Zealand dollar headed towards US43c for the second time this year yesterday, amid signs the country's relatively high interest rate may be luring investors down-under.
At 5pm the kiwi was at US42.90c, a little under half a cent higher than Monday's US42.52c close. The Australian dollar also lifted to US51.95c (US51.54c).
But dealers said the biggest moves yesterday were against the aussie on the cross, where the kiwi briefly touched a three-month high of A83.07c, before settling to close at A82.58c (A82.52c late Monday).
That rally was driven by expectations the Reserve Bank will hold fire on cutting interest rates and today's meeting, preserving the second-highest bond yields in the developed world.
New Zealand's Official Cash Rate is currently at 4.75 per cent, 3 percentage points higher than the comparable US rate and half a percentage point higher than the Australian rate.
Investors tend to favour currencies of nations with higher interest rates because of the prospects of higher returns.
"You buy the bonds and leave the currency unhedged. That can get you double digit returns," said Kumar Palghat, who has been buying New Zealand 10-year bonds for the $US3 billion ($NZ7.09 billion) in global bonds he helps manage at Pimco Australia Ltd.
"It's one of the cheapest currencies out there and it's the cheapest bond market."
The kiwi is the second-best performing major currency in the past month against the US dollar, gaining 3.2 percent.
New Zealand's 2-year bond note (April 2004) closed yesterday at a yield of 5.69 per cent, the second-highest of the Organisation for Economic Cooperation and Development nations. Only Poland offers higher yields.
"The New Zealand dollar stands out as the best high yielder on the planet," said Greg McKenna, market strategist at National Australia Bank Ltd.
"The aussie looks good, but the kiwi looks great."
Also boosting the currency is speculation Paris-based Groupe Danone may bid for New Zealand Dairy Foods Ltd.
Paris-based Danone was one of four potential bidders for Dairy Foods, the Australian Financial Review said yesterday, without citing sources.
Danone is completing a $300 million takeover of Frucor Beverages Ltd, helping drive up the New Zealand dollar against the euro.
The kiwi closed yesterday at 48.58 euros - its strongest level since early September - from 48.01 euros late Monday.
Dealers expected the kiwi to trade between US42.70c and US41.10c ahead of today's 9am RB announcement.
On the other crosses at 5pm the kiwi was buying 57.39 yen (56.22), 29.97 pence (29.53), and 0.7132 Swiss francs (0.7063). The Australian dollar was buying $NZ1.2110 ($NZ1.2121).
The Trade Weighted Index was at 52.07 (51.50), 90-day bank bills were steady at 4.87 per cent and the monetary conditions index was at minus 676 (minus 730).
On the debt market, the March 2002 bonds were flat at 4.75 per cent, the April 2004s were at 5.69 per cent (5.65), the November 2006s were at 6.23 per cent (6.20), and the November 2011s were at 6.52 per cent (6.50).
- NZPA
<i>Currency:</i> Kiwi heads for US43c
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