Kiwi TWI hits fresh post-float high as BOJ acts, central bank talks housing

The New Zealand dollar hit a fresh post-float high on a trade-weighted basis as the Bank of Japan's moves to print massive amounts of money keeps the kiwi well supported, and as Reserve Bank deputy governor Grant Spencer gave the local housing market a serve.

The trade-weighted index climbed as high as 77.77, the highest since the currency was floated in 1985, and traded at 77.72 at 5pm in Wellington from 77.64 on Friday in New York.

The kiwi traded at 84.40 US cents from 84.13 cents at 8am and 84.31 cents last week.

Japan's new central bank governor Haruhiko Kuroda will double monthly bond purchases to about 7.5 trillion yen to achieve 2 percent annual inflation in two years and devalue the yen.

That has stoked demand for New Zealand's currency, which is offering positive yields in an economy that is growing. The kiwi rose to 83.02 yen, having earlier reached a new five-year high 83.09 yen, from 82.21 yen last week.

"Kuroda was surprisingly aggressive for the market," says Imre Speizer, market strategist at Westpac Banking in Auckland. "The kiwi is really going to town against the yen."

New Zealand's Reserve Bank repeated its concern about the state of the local property market, with Mr Spencer telling a business audience "New Zealand needs to avoid another housing boom, which could potentially be more costly than the last, particularly at a time when the economy faces headwinds from an overvalued exchange rate, drought and a substantial programme of fiscal consolidation".

The local central bank is looking at introducing macro-prudential tools to cool asset bubbles, including imposing loan-to-value ratios on property lending.

"Economists thought it was a hawkish speech," Mr Speizer says.

The kiwi may extend gains against the yen and Australian dollar this week, with employment figures across the Tasman due on Thursday, he says. Those two cross-rates are driving gains in the TWI, with global risk aversion in financial markets keeping other cross-rates quiet.

The NZD may trade in a range of 83.25 US cents to 85 cents this week and is more likely to test the top of the range, according to a BusinessDesk survey of six traders and strategists.

The New Zealand Economic Institute of Research's quarterly survey of business opinion is scheduled tomorrow and will provide an update on how local firms are seeing the economic recovery.

That comes after Treasury said it expects drought in the North Island to shave 0.7 of a percentage point from growth this year, more than twice the central bank's forecast range of 0.2 to 0.3 of a percentage point published last month.

The kiwi traded at 81.20 Australian cents from 81.23 cents last week, little changed at 54.94 British pence from 54.93 pence, and unchanged at 64.89 euro cents.

(BusinessDesk)