N.Z. Dollar Trades Near Two-Week High on U.S. Credit Concerns

By Tracy Withers

July 14 (Bloomberg) -- The New Zealand dollar traded near a two-week high as speculation that U.S. authorities will have to bail out mortgage companies Fannie Mae and Freddie Mac increased demand for the nation's higher-yielding assets.

The currency gained for a fourth day as people with knowledge of the discussions said the two largest buyers of U.S. home loans are in talks with Treasury, Federal Reserve and White House officials to come up with funding plans should they require financing.

``Escalating fears about the health of Freddie Mac and Fannie Mae saw the U.S. dollar fall heavily against all the major currencies,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``The ongoing weakness in the U.S. dollar has seen the New Zealand dollar defy the steadily deteriorating domestic outlook.''

New Zealand's currency bought 76.23 U.S. cents at 9:51 a.m. in Wellington from 76.14 cents in late New York trading July 11. It bought 80.86 yen from 80.94 yen.

The U.S. dollar fell to $1.5965 per euro in Wellington from $1.5933 in New York. That's the weakest since April 23. The dollar reached the all-time low of $1.6019 the previous day.

Fannie and Freddie fell to the lowest level in more than 17 years in New York trading July 11 on concerns the companies don't have enough capital to survive the housing slump. They are critical for the housing market because they guarantee almost half the $12 trillion in outstanding U.S. mortgages.

Pledged Support

Treasury Secretary Henry Paulson has pledged support for the companies. Authorities may stand behind the companies if they cannot raise capital through bond sales, people said.

New Zealand's dollar gained even as investors have increased bets Reserve Bank Governor Alan Bollard will cut the benchmark interest rate of 8.25 percent in the third quarter, amid expectations economic growth has stalled.

Last month, the Governor said a rate cut is ``likely'' this year as economic growth slows.

The chance of a quarter-percentage point cut at the next review on July 24 is 58 percent from 32 percent a week earlier, according to an index calculated by Credit Suisse Group based on overnight swaps trading. Nine of 13 economists surveyed by Bloomberg expect a reduction in September. Three expect a July cut and one a move in October.

A government report today may show retail sales fell in May for the third month in four, adding to signs that the economy may have contracted in the second quarter, according to the median forecast of 12 economists surveyed by Bloomberg.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net