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Dollar at 3-year high, TWI surges to record as higher rates lure investors

New Zealand's trade-weighted currency index touched a record 81.67 and the kiwi reached a three-year high as the nation's relatively attractive yields in a global environment of low interest rates lured overseas investors.

The trade-weighted index was at 81.57 at 8am in Wellington from 81.42 at 5pm yesterday. The New Zealand dollar was trading at 87.72 US cents, having reached 87.87 cents, from 87.59 yesterday.

New Zealand's higher interest rates and stable political environment are attractive to overseas investors seeking higher yielding returns than they can achieve in their home countries. While the European Central Bank is looking at increasing stimulus to bolster the region's economy and interest rates remain at record lows in most other major economies, New Zealand's central bank has raised interest rates three times this year and is expected to hike again as soon as next month to stave off inflation in an economy stimulated by housing demand, migration and demand for commodity exports.

"It's not surprising as we look relatively calm and stable and we have got another rate hike coming in July," said Tim Kelleher, ASB Bank head of institutional foreign exchange sales New Zealand. "The money is going to go where the money is going to go which is it is going to seek the highest yield it can in a reasonably calm political stable environment. It is us. We look very attractive."

Kelleher said the kiwi is likely to remain in demand as investors look to a track of higher interest rates and further bond sales.

While the Reserve Bank may wish the currency would soften in line with recent weakness in commodity prices, it is unlikely to intervene to try and bring the kiwi down because there is no chance it would succeed while there is strong investor demand, Kelleher said. A spokesman for the Reserve Bank declined to comment.

The kiwi will probably trade between 87.50 US cents and 88 cents today, he said.

Today in New Zealand, the monthly trade balance data is released at 10:45am.

The New Zealand dollar advanced to 93.19 Australian cents from 93.11 cents yesterday, rose to 64.45 euro cents from 64.24 cents, edged lower to 51.51 British pence from 51.55  pence and gained to 89.21 yen from 89.13 yen.

(BusinessDesk)

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