New Zealand Dollar Declines

The New Zealand dollar dropped for a fifth week. It was traded near a 12-month low against the U.S. dollar and the weakest in almost two years versus the yen as concern that global economic growth will slow spurred investors to sell higher-yielding assets.

The kiwi, as the New Zealand currency is known, bought 76.79 yen, from 76.95 yen in Asia yesterday. It lost 1.1 percent this week.

The New Zealand dollar had its longest weekly losing streak since May 2007 as investors bet that lower interest rates would make the country's assets less attractive.

The currency has dropped almost 10 percent versus the U.S. dollar over the past month after the Reserve Bank of New Zealand reduced borrowing costs to 8 percent on July 24 and signaled more cuts ahead. The Treasury Department said Aug. 4 the nation probably contracted in the second quarter, pushing New Zealand into its first recession in a decade.

New Zealand's benchmark interest rate compares with 2 percent in the U.S. and 0.5 percent in Japan, making its currency a favorite target for carry trades.

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

New Zealand Dollar Declines, Bloomberg
8/15/2008 6:31:30 AM