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.