N.Z. Dollars Gains for a Third Day

The New Zealand dollar rose for a third day on speculation the U.S. Federal Reserve will delay increasing borrowing costs, making higher- yielding assets more attractive.

The currency climbed to their strongest in a week after reports in the U.S. showed housing starts dropped to a 17-year low and industrial production slid, prompting traders to bet the Federal Reserve will delay raising borrowing costs. New Zealand's benchmark rate is 8.25 percent, the highest of any nation with an Aaa credit rating and 6.25 percentage points higher than the Fed target.

New Zealand's dollar is the second-worst performer of 16 major currencies the past three months after the yen, falling 6.4 percent against the U.S. dollar, on expectations the Reserve Bank Governor Alan Bollard will cut interest rates in the third quarter.

Finance Minister Michael Cullen said today New Zealand's economy is weaker than forecast in last month's budget as rising credit, fuel and food costs crimp consumer confidence and spending.

The economy faces ``significant headwinds'' and would have contracted in the first quarter, Cullen told parliament's finance and expenditure select committee in Wellington.

Bollard said on June 5 it is ``likely'' he will cut borrowing costs from a record this year because economic growth is slowing. Twelve of 13 economists surveyed by Bloomberg News last week expect Bollard to cut rates in the third quarter.

N.Z. Dollars Gains for a Third Day

TradingEconomics.com, Bloomberg
6/17/2008 8:01:35 PM