New Zealand Dollar Heads for 5th Weekly Decline on Rate Outlook

By Candice Zachariahs

Aug. 15 (Bloomberg) -- The New Zealand dollar headed for a fifth consecutive weekly decline, its longest losing streak since May, as investors bet that lower interest rates would make the country's assets less attractive.

The kiwi, as the currency is called, fell to a near 12- month low against the U.S. dollar and its weakest in almost two years against the yen this week as concerns global growth will slow spurred investors to exit the so-called carry trade. The currency pared losses today after a government report showed retail sales in New Zealand rebounded in June.

``The New Zealand dollar has been affected by the momentum of the carry trade,'' said Alex Sinton, a senior currency trader at ANZ National Bank Ltd. in Auckland. ``Economically there are still factors that weigh on the kiwi.''

New Zealand's dollar dropped 0.4 percent to 69.88 U.S. cents as of 10:57 a.m. in Wellington, from 70.14 cents late in Asia yesterday and 70.43 a week ago in New York. It touched 68.26 cents on Aug. 13, the lowest since Aug. 17, 2007. The currency has fallen 0.8 percent this week.

The New Zealand dollar climbed from 69.75 cents after Statistics New Zealand released a report showing retail sales rose 0.9 percent from May when they declined 1.1 percent. The median estimate of 12 economists surveyed by Bloomberg News was for no change.

The currency has dropped 8.4 percent versus the U.S. dollar in the past month after the Reserve Bank of New Zealand reduced borrowing costs to 8 percent on July 24 and signaled more cuts ahead. The Treasury Department said Aug. 4 the nation probably contracted in the second quarter, pushing New Zealand into its first recession in a decade.

`Slowing Activity'

Goldman Sachs Group Inc. changed its forecast for the kiwi yesterday. New Zealand and neighboring Australia face ``challenges on the domestic front from slowing activity,'' analysts led by Thomas Stolper wrote in a research note. The firm now expects the currency to buy 68 U.S. cents in three months, compared with an earlier forecast of 73 cents.

The kiwi bought 76.84 yen, from 76.95 yen in Asia yesterday and 77.61 in New York on Aug. 8. It has lost 1 percent this week.

New Zealand's benchmark interest rate compares with 2 percent in the U.S. and 0.5 percent in Japan, making its currency a favorite target for carry trades.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the rates. The risk is that currency market moves can erase those profits.

Traders are betting the Reserve Bank will lower its benchmark rate by 1.53 percentage points over the next 12 months, according to a Credit Suisse Group index based on overnight swaps trading yesterday.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net