New Zealand Dollar Advances on Prospect Interest Rates May Rise


New Zealand's dollar gained to the highest in two weeks after a report showed imports rose last month, bolstering speculation the central bank will need to increase interest rates again.

The local dollar was the best performer among the 17 most- actively traded currencies as rising imports suggested the Reserve Bank of New Zealand's four increases to the benchmark interest rate this year may not be subduing demand. The record 8.25 percent rate lures traders to buy the nation's currency in order to invest in its higher-yielding bonds and bills.

``We're picking rate hikes and this shows imports are trucking along, showing strong consumption,'' Sharon McCaw, economists at Westpac Banking Corp. in Wellington said. The New Zealand ``dollar is definitely onwards and upwards from here.''

New Zealand's dollar bought 77.01 U.S. cents as at 4:51 p.m. in Wellington, from 76.72 immediately before the report's release, and 76.63 cents in late New York trading Oct. 26. It may advance above 77.25 cents today, said Alex Sinton, senior currency dealer at ANZ National Bank Ltd. in Auckland.

The currency also strengthened against the yen, trading at 87.94, from 87.49 yen late in New York last week.

The New Zealand dollar is a favorite for the so-called carry trade, where funds are borrowed in countries with lower interest rates, and invested in places that offer higher yields. Investors are attracted to a benchmark rate that is 3.5 percentage points more than the U.S. target and 7.75 points higher than Japan's. The risk is that currency market moves erase those profits.


Bloomberg
10/29/2007 10:28:53 AM