Kiwi gains as investors seek higher yields

Tuesday 17th August 2010

The New Zealand gained as investors shunned US Treasuries in their search for higher yields, as China cemented its place nearer the top of the food chain, surpassing Japan as the world's second-biggest economy.

The Dollar Index, a measure of the greenback against a basket of currencies, fell 0.2% to 82.47 as US 10-year Treasuries fell 11 basis points to 2.573%, extending the yield advantage of Australia and New Zealand, whose government bonds are paying 4.965% and 5.18% respectively.

US data continued to disappoint, with home builder sentiment falling for a third month and the New York Federal Reserve's Empire Manufacturing survey falling short of expectations. China became the world's second-biggest economy after weaker-than-expected second-quarter economic growth of 0.1% in Japan.

"The Aussie held reasonably good support - its yields look quite attractive, and US Treasuries are still going lower," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

"The kiwi is consolidating at a lower level and will struggle to get back to 71/72 US cents."

The kiwi gained to 70.71 US cents from 70.17 cents yesterday, and climbed to 66.03 on the trade-weighted index of major trading partners' currencies from 65.71. It rose to 60.34 yen from 60.11 yen yesterday, and was little changed at 78.81 Australian cents from 78.79 cents. It advanced to 55.16 euro cents from 54.78 cents yesterday, and increased to 45.16 pence from 45.04 pence.

Kelleher said the currency may trade between 70.50 US cents and 71 cents today with Chinese equities likely to have a reasonably good day after the Dow Jones Industrial Average closed flat.

"The kiwi will get bid above 70.50, but we'll still be selling on rallies," he said.

He doesn't expect it will fall below 70 US cents until equities and data come in weaker, which could be later this week.

Investors will be looking for any movement in the Reserve Bank of Australia's tightening track when the central bank's minutes are released today.

Speculation is growing that Japanese Prime Minister Naoto Kan will meet with Bank of Japan Governor Maasaki Shirokawa to discuss intervention in the currency. The yen is near its strongest level in 15 years at 85.31 per US dollar.

Businesswire.co.nz

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