N.Z. Dollar Rises to Record

The New Zealand dollar rose to the strongest since being allowed to trade freely in 1985 as easing credit concerns prompted investors to buy higher-yielding assets.

The New Zealand dollar were the second- and fourth-best performers among 16 most-active currencies against the U.S. dollar today as Standard & Poor's said the world's two largest bond insurers retained their AAA credit rating.

New Zealand's dollar rose as high as 81.52 U.S. cents, the strongest since the government stopped controlling the currency in March 1985. It bought 81.40 cents at 1:44 p.m. in Wellington from 80.83 cents late in Asia yesterday.

The kiwi rose the most versus the yen, climbing to 88.12 yen, the strongest since Dec. 28, before trading at 88.04 yen from 87.16 yen. It reached a two-week high of 1.1382 versus the Australian dollar and a two-month high of 5.83 against the Chinese yuan.

New Zealand's 8.25 percent official cash rate is the highest after Iceland's among Aaa rated economies. High rates make the New Zealand dollar popular targets for so-called carry trades.

In a carry trade, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the borrowing and lending rate. The risk is currency market moves erase those profits.

N.Z. Dollar Rises to Record

TradingEconomics.com, Bloomberg
2/25/2008 5:48:44 PM