New Zealand Dollar May Fall as Investors Spurn Higher Yields

By Tracy Withers

Sept. 1 (Bloomberg) -- The New Zealand dollar may fall on speculation that rising oil prices and weaker U.S. stocks will prompt investors to turn away from higher yielding investments.

Oil prices rose as Hurricane Gustav approached the Gulf of Mexico, halting most oil and gas output and shutting local refineries. Falling U.S. stocks make investors more averse to risk and less inclined to buy currencies such as the New Zealand dollar where the benchmark interest rate is 8 percent.

``Soft U.S. stocks and rising risk aversion sent yen cross rates south,'' said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's currency bought 69.97 U.S. cents at 9:54 a.m. in Wellington trading, from 70.05 cents in late New York on Aug. 29. The currency fell to 75.81 yen from 76.25 yen, nearing a two-week low.

New Zealand's dollar is a popular investment for traders who borrow cheaply in yen where the benchmark rate is 0.5 percent. The trade is risky because profits depend on the movement in two currencies and investors typically exit the trade when other markets deteriorate.

The Standard & Poor's 500 index fell 1.4 percent on Aug. 29 amid rising oil prices and lower-than-estimated earnings at Dell Inc., the world's second-largest personal computer maker.

Gustav, downgraded to a Category 3 storm by the National Hurricane Center in Miami yesterday, may strengthen to Category 4 later today and will make landfall as a ``major'' hurricane. The storm shut three-quarters of oil output in the region and refineries operated by Valero Energy Corp., ConocoPhillips, Marathon Oil Corp. and Exxon Mobil Corp.

New Zealand's dollar may also decline amid expectations Reserve Bank Governor Alan Bollard will cut rates at his next review on Sept. 11 as the economy slows. Fourteen of 15 economists surveyed by Bloomberg News expect a quarter- percentage point cut and one expects a half-point reduction.

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