Dollar rises to 4-week high vs AU as investors favour higher kiwi yields

The New Zealand dollar rose to its highest in almost four weeks against the Australian dollar as investors favoured the higher yields on offer in New Zealand.

The kiwi touched 95.39 Australian cents overnight, its highest level since Jan. 16, and was trading at 95.28 cents at 8am in Wellington, from 94.91 cents at 5pm yesterday. The local currency slipped to 74.01 US cents from 74.33 cents yesterday.

In a global environment where some 17 central banks have cut interest rates so far this year, overseas investors are lured to the higher yields on offer in New Zealand, where rates are expected to remain on hold for some time. Traders are betting the Australian Reserve Bank may reduce the benchmark interest rate by 35 basis points over the next year, after cutting the rate to a record low 2.25 percent this month, according to the Overnight Swap Index. In comparison, New Zealand's central bank is seen reducing its 3.5 percent rate by just 16 basis points over the same period.

"Offshore traders continue to focus on the diverging trends in New Zealand dollar and Australian dollar fundamentals which will keep this cross elevated over the medium-term," Con Williams, an agri economist at ANZ Bank New Zealand, said in a note.

ANZ expects the kiwi to trade between 95 Australian cents and 95.80 cents today.

In New Zealand today, data is published on electronic card spending for January and the Real Estate Institute releases its January housing report.

Australia has consumer confidence and home loans reports scheduled for release today.

The New Zealand dollar weakened to 65.36 euro cents from 65.55 cents yesterday after a report said European officials would make a compromise proposal to give Greece another six months to negotiate a deal. Eurozone finance ministers are scheduled to meet in Brussels today to discuss Greece.

The local currency slipped to 48.51 British pence from 48.76 pence yesterday and advanced to 88.29 yen from 88.06 yen. Japanese banks will be closed today in observance of National Foundation Day.

The kiwi weakened to 4.6186 yuan from 4.6417 yuan yesterday after Chinese inflation fell to a five year low of 0.8 percent in January.

The trade-weighted index was at 76.87 from 76.97 yesterday.

(BusinessDesk)