NZ dollar holds gains as positive yields attract increasingly nervous investors

Wednesday 10th February 2016

The New Zealand dollar held on to most of its gains in the local trading session as the country's positive yields attracted investors struggling to find actual returns, while they become increasingly nervous about the prospects for global growth.

The kiwi traded at 66.18 US cents at 5pm in Wellington from 66.35 cents at 8am, up from 65.88 cents yesterday. The trade-weighted index advanced to 72.01 from 71.89 yesterday.

Stocks across Asia fell, following Wall Street lower, as investors remain pessimistic about global growth, and seek out relatively safe assets, such as the Swiss franc and Japanese yen. That typically erodes demand for the kiwi, though negative interest rates in some of the world's largest economies means the positive yield on offer in New Zealand holds enough allure for investors. The yield on New Zealand's 10-year bond was at a record low 3.02 percent, compared to 1.71 percent on US Treasuries and 0.02 percent for Japanese bonds.

"As a high yielding currency the kiwi should be seen as relatively attractive," said Mark Johnson, senior dealer foreign exchange at OMF in Wellington. "The caveat is that when you're facing global risk aversion, the kiwi and the Aussie should be lower, particularly the kiwi due to the low liquidity."

New Zealand's two-year swap rate increased two basis points to 2.58 percent, and 10-year swaps were unchanged at 3.19 percent.

Markets across Asia will be quieter than usual tomorrow with China still out for the week-long Lunar New Year holiday, and Japan closed for its National Foundation Day holiday.

Investors will be watching for Federal Reserve chair Janet Yellen's testimony tomorrow to see whether the central bank's plans to raise interest rates this year are still intact.

Local government figures today showed retail spending on credit and debt cards rose in January, even as cheaper petrol prices meant less was spent on fuel.

The kiwi rose to 93.70 Australian cents from 93.58 cents yesterday, and gained to 4.3487 Chinese yuan from 4.3290 yuan. It increased to 75.86 yen from 75.47 yen yesterday, and slipped to 58.60 euro cents from 58.75 cents. It was little changed at 45.72 British pence from 45.66 pence.

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