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NZ dollar edges up as yields remain attractive

Monday 22nd December 2014

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The New Zealand dollar edged up against the greenback as traders seek higher yielding assets heading into the New Year after the Swiss National Bank signalled plans last week to cut its deposit rate to negative, spurring demand for real returns.

The kiwi increased to 77.58 US cents at 8am from 77.47 cents on Friday in New York, and down from 77.80 cents in Wellington last week. The trade-weighted index was little changed at 78.70 from 78.78 last week.

Switzerland's central bank will reduce the rate on 'sight deposits' to minus 0.25 percent from late January next year in a bid to cap its rising franc, joining European and Japanese policymakers in taking steps to devalue their currencies. That makes currencies such as the New Zealand dollar more attractive to investors seeking higher real returns.

"There's a clear bunch of currencies that have no yields or negative yields," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. "What little yield there is out there, kiwi is probably the highest."

OMF's Rudings expects the greenback will continue to appreciate next year as the Federal Reserve embarks on tightening monetary policy, which should reduce the yield advantage the kiwi and Australian dollar have.

Trading is expected to be thin in the next two shortened weeks over the Christmas and New Year holiday period.

The kiwi was little changed at 92.79 yen from 92.78 yen last week, and traded at 95.09 Australian cents from 95.12 cents. It increased to 63.47 euro cents from 63.34 cents last week and was little changed at 49.64 British pence from 49.66 pence. It increased to 4.8252 Chinese yuan from 4.8420 yuan last week.

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