NZ dollar heads for 1.9% gain in September quarter

The New Zealand dollar is heading for a 1.9 percent gain against the greenback this quarter as the country's relatively high interest rates and strong economic outlook continue to attract investors, though concerns about global banks are tempering appetite for risk-sensitive assets.

The kiwi rose to 72.64USc  at 5pm in Wellington from 71.30USc  at the start of the quarter. It was little changed from 72.56USc  at 8am and down from 72.90USc  yesterday. The trade-weighted index is heading for a 1.7%  quarterly gain to 77.17. The TWI was little changed from 77.26 yesterday.

New Zealand's currency has been a beneficiary of major central banks running near-zero interest rate policies, making the relatively high local rates on offer attractive to international investors. A strong domestic economy and recovering global dairy prices have supported that demand, through investors are becoming wary that the Reserve Bank will lower the official cash rate later this year.

"The kiwi's going to be supported on dips because of the yield and that it's seen as a safe haven" compared to the political risks facing Europe and North America, said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "It's been pretty well supported on any dips at 72/72.50USc. It would have to go below 72USc  for it to get a run on."

Mr Kelleher said fears about the banking sector are weighing on investors going into the quarter-end with the US Department of Justice seeking a $US14 billion claim against Germany's Deutsche Bank over an investigation into residential mortgage-backed securities. Hedge funds have started withdrawing some of their business from the bank and the German government is coming under increased pressure to show it's ready to stand behind the lender. Germany's second biggest bank, Commerzbank, this week announced plans to lay off 9600 people and suspend dividends to see it through a period of dwindling profits.

Local data today showed a slowing in new residential building consents, with the number of new permits falling in August, while a business confidence survey showed firms were upbeat about both the economy and their own activity.

New Zealand's two-year swap rate fell two basis points to 1.96% , and was down 26 basis points in the quarter, while 10-year swaps dropped five basis points to 2.4% , falling 25 basis points in the quarter, reflecting the one quarter-point cut made by the Reserve Bank in August.

The kiwi increased to 95.15Ac from 94.75Ac cents on Thursday and fell to 4.8415 Chinese yuan from 4.8658 yuan. It declined to ¥73.63  from ¥73.95 and dropped 64.74 euro cents from 65 cents. It was little changed at 55.99 British pence from 56.02 pence.

(BusinessDesk)