By ELLEN READ markets writer
The New Zealand dollar is growing in appeal as the United States dollar remains under pressure and investors seek wider investment destinations.
Last week the kiwi reached a 14-month high at 45.11USc and this week it is heading up to 45.5USc. It is expected to end the year in the high 40s.
In fact, it continues to vie for the position of best performing currency so far this year.
Since the start of the year it has appreciated 8.3 per cent against the greenback, making it the top performing major currency. Only the Indonesian rupiah, Iceland krona, Botswana pula and South African rand have done better.
Underpinning the kiwi - which has risen 6 per cent on a trade-weighted basis this year - is a widening interest rate differential, with New Zealand offering investors higher interest rates than the US and other countries. Also helping the kiwi is strong domestic growth and recovering world demand, alongside a weaker United States dollar.
Westpac currency strategist Johnathan Bayley said several factors were weighing on the greenback, including the less impressive data seen since the first quarter, the disappointing trend in business investment and the increasing pressure being applied to the United States over its Middle East stance. Weakness in equities markets was also contributing, with the Dow Jones Industrial Average posting its biggest weekly loss since September and down 7.2 per cent in the past six weeks, he said.
But the kiwi is also popular in its own right, he said. This year it has outperformed the euro. In January, the kiwi bought around 47€c but it has appreciated more quickly against the US dollar than the euro and hit a 50.70€c high in the first quarter.
"What that tells us is that the kiwi dollar has not only appreciated as a result of [United States] dollar weakness, it has also appreciated because markets have started to look outside core asset market destinations at other capital destinations," Bayley said.
Although the New Zealand economy is outperforming much of the rest of the world, risks for the kiwi include a slowdown in domestic growth, a rise in the current account deficit and a clawback in the interest rate differential.
Kiwi in running for best-performing currency
AdvertisementAdvertise with NZME.