New Zealand dollar touched the weakest in seven weeks versus the yen in the past five trading days as global stock losses spurred investors to cut so-called carry trades.
The New Zealand Dollar dropped to 75.74 U.S. cents from 77.23 cents yesterday and is headed for a 3.2 percent drop this week. The currency weakened 2.6 percent to 80.80 yen and touched 80.70 yen, the weakest since Nov. 27.
In carry trades, investors borrow funds in countries with lower lending rates, such as Japan's 0.5 percent benchmark, using the cash to invest in nations that offer higher returns. The currencies have been targets for the strategy because of Australia's 11-year high rate of 6.75 percent and New Zealand's record 8.25 percent benchmark.
Carry trades are considered risky because currency fluctuations can erase the profit earned on the difference in interest rates. Australia's dollar has fallen 13 percent and New Zealand's by 16 percent against the yen in the past six months as the worst U.S. housing slump in 16 years deepened, reducing the amount of credit available worldwide.