N.Z. Dollar Gains on Prospect Yield Gap With U.S. Will Widen


New Zealand's dollar rose to the highest in almost two weeks on speculation the ongoing housing slump will spur another U.S. interest-rate cut, boosting the appeal of the South Pacific nation's higher-yielding assets.

Home prices in 20 U.S. metropolitan areas fell in October by the most in six years, causing traders to maintain bets the Federal Reserve will cut its benchmark rate again in a bid to reignite economic growth. New Zealand's dollar has jumped 9.1 percent since Sept. 18, when the Fed cut its target rate for the first of three times this year, increasing the yield gap between the two countries to 4 percentage points.

The New Zealand dollar bought 76.82 U.S. cents at 1:30 p.m. in Wellington, from 76.62 cents in late Asian trading yesterday. It earlier rose to 76.97, the strongest since Dec. 14, and may strengthen to 77.10 today, Sinton said.

The currency also gained against the yen, trading at 87.77 yen, from 87.49 late yesterday.

New Zealand's record 8.25 percent official cash rate is the highest after Iceland's among Aaa rated economies. That makes it a favorite for the so-called carry trade, where funds borrowed cheaply in countries with lower borrowing costs are invested in places that offer higher returns. Japan's benchmark rate is 7.75 percentage points lower than New Zealand's.


Bloomberg
12/27/2007 10:28:18 AM