N.Z. Dollar Post Biggest Annual Gain in Four Years


New Zealand dollar posted the biggest annual gain in four years as quickening inflation and economic expansion prompted The Reserve Bank of New Zealand to raise interest rates.

New Zealand's dollar touched a 22-year high in July as borrowing costs rose to a record 8.25 percent. Federal Reserve rate cuts widened the Southern Hemisphere nation rate advantages over the U.S. to a 2 1/2-year high.

The New Zealand dollar bought 77.68 U.S. cents from 77.47 late last week and added 10 percent this year to complete a second straight annual gain.

The currency traded near the strongest in two weeks as traders bet New Zealand's 4 point rate advantage over the U.S. will widen. Traders raised the odds of a fourth consecutive interest-rate cut by the Fed after a report on Dec. 28 showed sales of new homes in the U.S. fell to a 12-year low.

The Reserve Bank of New Zealand is likely to keep rates unchanged in the next year, according to a Credit Suisse Group index based on trading in interest-rate swaps.

The New Zealand dollar completed an annual gain against the yen rising for a seventh straight year, as investors increased so-called carry trades.

New Zealand currency in July touched the strongest since 1986. It has declined from those levels as rising defaults in U.S. subprime, or high risk, mortgages sparked a reduction in the amount of credit worldwide and slashed earnings for financial stocks.

 


TradingEconomics.com, Bloomberg
12/31/2007 7:48:42 AM