New Zealand Dollar Advances as Investors Seek Higher Yields

By Ron Harui

Sept. 4 (Bloomberg) -- The New Zealand dollar rose from its lowest level in almost a year on speculation investors will take advantage of the currency's decline to buy the nation's higher- yielding assets.

New Zealand's dollar gained for the first time in five days as the difference between three-year New Zealand and U.S. interest-rate swaps widened to 3.58 percentage points, the most since July 17. The currency, known as the kiwi, was also bolstered as traders bet its 2.3 percent loss in the past five days was overdone.

``The New Zealand-U.S. three-year swap spreads have widened over the past week, which may be providing a bit of support for the New Zealand dollar,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``Given the extreme moves we've seen over the past few days, we can't help but think the kiwi is overdue a bit of consolidation.''

New Zealand's currency advanced 0.8 percent to 68.41 U.S. cents as of 11:10 a.m. in Wellington, from 67.88 cents late in Asia yesterday when it reached 67.36 cents, the lowest since Aug. 17, 2007 The currency also climbed to 74.14 yen from 73.80 yen yesterday when it touched 73.24, the weakest since August 2006.

The benchmark interest rate of 8 percent in New Zealand compares with 2 percent in the U.S. and 0.5 percent in Japan, making the currency a favorite for investors seeking higher returns.

The New Zealand dollar's 14-day stochastic oscillator, a technical indicator which measures momentum, was at 11.00 against the U.S. dollar yesterday, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too rapidly and is poised to rebound.

New Zealand 10-year government bonds advanced for a second day, pushing the yield down 2 basis points, or 0.02 percentage point, to 5.96 percent. The price of the 6 percent security maturing in December 2017 rose 0.152, or NZ$1.52 per NZ$1,000 face amount, to 100.306. Yields move inversely to prices.

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