Member log in

Dollar little changed as yield advantage offsets risk aversion

The New Zealand dollar was little changed as the currency's relatively attractive yield helped underpin the currency in the face of heightened risk aversion among investors.

The kiwi traded at 84.67 US cents at 5pm in Wellington from 84.60 cents at 8am, and 84.56 cents on Friday in New York. The trade-weighted index edged up to 79.39 from 79.27 last week.

New Zealand's currency has been a favourite among investors this year after a series of interest rate increases boosted its yield advantage over its peers. The yield on 10-year New Zealand government bonds was recently at 4.25 percent, compared to 2.44 percent on 10-year US Treasuries or 1.05 percent on European government bonds. That advantage has limited the kiwi's 3.9 percent decline over the past month as falling commodity prices and heightened geopolitical tensions sap investors' appetite for risk-sensitive assets.

"The kiwi seems to be somewhat immune to risk aversion," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "It points to the long-term yield advantage of New Zealand."

ANZ's Tuck said he expects the kiwi will eventually grind lower as the US economic recovery gathers pace, and stokes demand for the greenback.

New Zealand government figures today showed retail spending on electronic cards rose in July after a survey last month showed increased consumer confidence.

A BusinessDesk survey of eight traders and strategists predicts the kiwi will probably trade between 83 US cents and 86 cents this week. Four expect the kiwi will remain largely unchanged this week, while three said it may gain and one is picking a drop.

The local currency gained to 86.48 yen at 5pm in Wellington from 86.29 yen on Friday in New York, and increased to 91.22 Australian cents form 91.12 cents. It edged up to 63.18 euro cents from 63.05 cents last week, and was little changed at 50.44 British pence from 50.41 pence.

(BusinessDesk)

More on: