NZ dollar heads for 5.8% gain in 2012

The New Zealand dollar rose as traders squared up their year-end positions as negotiations in the US to stave off legislated tax hikes and spending cuts that automatically kick in on January 1 remain unresolved.

That kiwi is heading for a 5.8% annual gain on its relative yield advantage.

The kiwi rose to 82.33USc at 1.30pm in Wellington from 81.94USc at 8.30am and 81.93USc on Friday in New York.

The trade-weighted index advanced to 73.82 from 73.55 last week, and is heading for a 6.8% annual gain.

"The kiwi's going to remain under pressure until they get a resolution" on the fiscal cliff, says Michael Johnston, director of foreign exchange at HiFX in Auckland.

New Zealand's currency has been a favourite among traders this year as investors have scoured the global for better returns in the relative safety of developed economies. Though local data has tended to disappoint, New Zealand's economy has continued to recovery in contrast to some of its peers.

At the same time global central banks have flooded the markets with money, meaning local interest rates have been more attractive.

The yield on New Zealand's 10-year government bonds was 3.55% at 1.30pm in Wellington, compared with a 1.7% yield on US 10-year Treasuries, and 1.32% on 10-year German bunds.

"The US dollar will stay under pressure as they continue to print money - more supply of US dollars keeps it under pressure and will be the dominant factor certainly for the first half of next year," Mr Johnston says.

Trading in the currency has become less volatile, climbing as high as 84.70USc in February and as low as 74.13USc in June.

Mr Johnston expects it to trade in a 10c range next year between the high-70s and mid-to-high-80s.

He also expects the currency will spend more time above 80Ac next year as Australia's economy slows down with its waning resources boom. The kiwi increased to 79.13Ac from 79.01Ac last week, and is headed for a 4.8% annual gain.

The kiwi is headed for an 18% surge against the yen this year after a new Japanese government saw investors sell out of the yen on the expectation the administration will lean more heavily on the Bank of Japan to take a more active role in weakening the currency.

The kiwi rose to ¥70.75 at 1.30pm in Wellington from ¥70.53 on Friday in New York.

New Zealand's currency rose to €0.6221 from €0.6198 cents on Friday in New York and is headed for a 3.4% gain this year.

The kiwi advanced to 50.93p from 50.68p last week, and is poised to rise 1.6% this year.

BusinessDesk