The New Zealand dollar is within striking distance of its
post-float high against the US dollar, due mostly to weakness
in the greenback and a sluggish American economy.
At this afternoon's level of US87.92c, the currency is just
short of its post 1985 float high of US88.42c, which was set
on August 1, 2011.
Foreign exchange strategists said a push in the currency
beyond the 2011 record was possible over the next couple of
"Will it break through? Yes, there is every chance because it
is looking quite strong," Westpac senior market strategist
Imre Speizer said. "The main reason, still, though is US
dollar weakness rather than Kiwi dollar strength," he said.
Just as in 2011, strategists said New Zealand dollar's
strength was more to do with US dollar weakness than
Kiwi-specific factors, although an overnight credit rating
outlook upgrade by Fitch and the prospect of higher domestic
interest rates were clearly supportive for the Kiwi.
In 2011, political wrangling over the US budget deficit and
the spectre of the US defaulting on its debt repayment
obligations put the US dollar on a downward slide, adding
upward pressure on many currencies, the Kiwi included.
Overnight, weakness in US equities translated into buying
interest in the US bond market. When bond prices rally,
yields fall, and so when the US 10-year bond yield fell by
five basis points to just 2.56 per cent, the greenback came
under renewed selling pressure.
"Last night, the price action was about an extended US equity
market that needed to pulled back, so that caused a shift out
of equities and into US bonds, which pushed down US interest
rates and pushed down the US dollar," Speizer said.
On Wall Street, the S&P 500 equity index fell 0.7 per
cent, leaving it 1.1 per cent below last Thursday's closing
high of 1,985.44. The Dow dropped 0.7 per cent and ended back
The Kiwi shifted higher to US88.05c after Fitch reaffirmed
the country's AA rating and upgraded its outlook to positive
from stable. The New Zealand dollar has gained almost 6 cents
against the US dollar so far this year.
Yield seeking overseas investors have good reasons to buy.
The Reserve Bank has increased the benchmark interest rate
three times this year to 3.25 percent and is expected to hike
again this month in an attempt to curb inflation. In sharp
contrast, rates in most other developed countries are at or
near historical lows.
"As one of the only two currencies with any appreciable yield
in the advanced industrialised universe, the kiwi has been
the darling of the yield chasers and (the) upgrade by Fitch
will only serve to reinforce its strength," Boris
Schlossberg, managing director of foreign exchange strategy
at BK Asset Management in New York, said in a note.
- By Jamie Gray, APNZ business reporter; additional