New Zealand Dollar Advances From Two-Week Low on Stock Gains

By Tracy Withers

Aug. 27 (Bloomberg) -- The New Zealand dollar rose from a two-week low amid a recovery in U.S. stocks that encouraged investors to seek higher-yielding currencies.

The currency climbed against the yen as stocks rebounded from the biggest drop in a month, boosting demand for so-called carry trades. Investors turned to currencies such as the New Zealand dollar where the benchmark interest rate is 8 percent, or 6 percentage points higher than the Federal Reserve's target.

``A recovery in U.S. stock markets helped underpin yen crosses and the New Zealand dollar rebounded off its lows,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``The risks are skewed in favor of the currency extending its gains.''

New Zealand's currency gained to 69.70 U.S. cents at 9:35 a.m. in Wellington trading, from 69.06 cents late in Asia yesterday. The currency rose to 76.38 yen from 75.87 yen.

The currency recovered from a two-week-low of 68.99 cents set yesterday when investors spurned higher-yielding assets amid fresh concerns about credit market losses.

When stocks rise, investors have the confidence to borrow cheaply in nations such as Japan, where the benchmark rate is 0.5 percent, and buy assets in New Zealand. The strategy is known as a carry trade, with the risks that moves in currencies can erase profits.

The New Zealand dollar also gained before a report today that is expected to show a recovery in business confidence in August, Hampton said.

The ANZ National Bank Ltd. survey showed companies were pessimistic about their sales for a fifth straight month in July, adding to signs the economy is in a recession.

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