New Zealand Dollar Advances After Business Confidence Improved

By Ron Harui and Tracy Withers

Aug. 28 (Bloomberg) -- The New Zealand dollar rose on optimism that the South Pacific economy is recovering from a first-half recession, prompting traders to pare bets on central bank interest-rate reductions.

New Zealand's dollar gained for a second day after a survey yesterday showed business confidence improved in August for the first time in six months. The currency trimmed this week's loss to 0.8 percent as the difference in yield between 10-year New Zealand and U.S. government bonds widened to 2.27 percentage points from 2.17 percentage points at the end of July.

``The business confidence data revealed a more positive outlook,'' said Philip Borkin, an economist at ANZ National Bank Ltd. in Wellington. ``U.S. dollar fortunes may wane'' against the New Zealand dollar, he said.

The New Zealand dollar advanced 0.2 percent to 70.34 U.S. cents at 12:01 p.m. in Wellington from 70.17 cents late in Asia yesterday. It reached 68.26 cents on Aug. 13, the lowest since Aug. 17, 2007. The currency rose 0.8 percent to 76.96 yen from 76.36 yen.

Companies were positive about sales and profits over the next 12 months, according to an ANZ National Bank Ltd. survey. A second measure of economic confidence improved to minus 21 from minus 43 and firms were less pessimistic about profits, hiring and investment plans.

New Zealand's $105 billion economy was probably in a recession in the six months through June, the Treasury Department said Aug. 4.

Traders are betting the Reserve Bank of New Zealand will lower its 8 percent official cash rate by 1.45 percentage points over the next 12 months, down from 1.50 percentage points a week earlier, according to a Credit Suisse Group index based on interest-rate swaps.

New Zealand government debt was little changed. The yield on the benchmark 10-year note was at 6.04 percent and the three- year yield held at 6.13 percent. Yields move inversely to prices.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Tracy Withers in Wellington at twithers@bloomberg.net