New Zealand Dollar Strengthens as Investors Seek Higher Yields

By Tracy Withers

Aug. 20 (Bloomberg) -- The New Zealand dollar rose as weak housing figures and speculation of mounting credit market losses at financial firms prompted investors to sell the U.S. dollar and seek higher-yielding assets elsewhere.

The currency is the best performer among the 16 most-traded against the U.S. dollar in the past week as traders were attracted to New Zealand's 8 percent benchmark interest rate, which compares with the Federal Reserve's 2 percent target. The U.S. currency dropped from a six-month high against the euro after a slump in July housing starts.

``The U.S. dollar suffered from poor housing data,'' said Khoon Goh, senior markets economist at ANZ National Bank Ltd. in Wellington. ``It is not surprising to see the New Zealand dollar gaining ground.''

New Zealand's currency bought 71.35 U.S. cents at 9:45 a.m. in Wellington from 71.04 cents in late Asian trading yesterday.

New Zealand's currency has climbed from an 11-month low reached on Aug. 13. It has gained support as consumer confidence rose to the highest since April, according to a survey conducted by Roy Morgan and released Aug. 18.

Consumers are more optimistic that it is a good time to buy a house amid expectations that home-loan interest rates will decline, according to a report today from ASB Bank Ltd.

The U.S. dollar declined as a government report yesterday showed housing starts fell 11 percent in July to the lowest in 17 years. Building approvals, a sign of future construction, also slid. Crude oil rose more than a $1 a barrel on expectations a report will show a decline in U.S. gasoline stockpiles.

U.S. stocks had their biggest two-day decline since June, led by American International Group Inc., the largest insurer, and Lehman Brothers Holdings Inc., the biggest mortgage-bond underwriter, as analysts warned of added writedowns from bad real-estate loans.

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