Kiwi gains – high yields sought as Asia slows

BUSINESSDESK: The New Zealand dollar rose in local trading as investors looked for assets still making positive returns in the face of slowing Asian economies.

The kiwi rose to 79.19 US cents at 5pm from 79.01 cents at 8am, and was down from 79.31 cents yesterday. The trade-weighted index was little changed at 72.17 from 72.21 yesterday.

Gross domestic product in China expanded 7.6% in the three months ended June 30 from a year earlier, according to the National Bureau of Statistics. That was in line with market expectations of 7.7% growth, slowing from an 8.1% pace in the first quarter.

The figures followed an unexpected contraction in Singapore, where GDP fell an annualised 1.1%, and a surprise rate cut from the Bank of Korea yesterday.

"You've got six countries in Europe with negative bond yields, our yields are positive – where else are you going to put your cash," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "There's definitely the case of that going on with the data quite weak out of Asia."

The kiwi fell to 5.0460 yuan from 5.0503 yuan yesterday and rose to 1.0053 Singapore dollars from 1.0045 dollars. It gained to 910.58 Korean won from 910.14 won yesterday, and slipped to 62.76 yen from 63 yen.

Investor sentiment was dented earlier in the day, when Moody's Investors Service cut Italy's government bond rating two notices to Baa2 from A3, and left it on a negative outlook, citing the threat of contagion in the eurozone.

The yield on Italy's benchmark 10-year government bond was little changed at 5.9%.

Mr Kelleher said the kiwi may trade between 78.75 US cents and 79.50 cents in the Northern Hemisphere session and will probably go sideways as it closes out the week as it takes its lead from equity markets. The currency is poised for a 0.6% decline against the greenback and a 0.8% fall on a trade-weighted basis.

Stocks on Wall Street fell yesterday, and traders will be keeping an eye on JP Morgan's quarterly result, which will show the investment bank's losses from the so-called "London Whale". The bad derivatives bets by its chief investment office may have cost the bank between $US4 billion and $US6 billion, Reuters reported.

The New Zealand dollar rose to 51.29 British pence from 51.12 pence yesterday and crept up to 64.85 euro cents from 64.75 cents. It was little changed at 77.86 Australian cents from 77.79 cents yesterday.