Exporters use greenback strength to hedge kiwi

The New Zealand dollar pared its decline during the local session as exporters took advantage of the strengthening greenback to ramp up their hedging with a cheaper entry point.

The kiwi increased to 82.13 US cents at 5pm from 81.88 cents at 8am, down from 82.90 cents yesterday. The trade-weighted index fell to 77.13 from 77.46 yesterday.

New Zealand's currency has plunged 3.8 percent since May 3 as investors flocked back into the greenback amid growing expectations the world's biggest economy is on the mend.

The falling kiwi has encouraged local exporters to take advantage of drops during the Northern Hemisphere session by ramping up their hedging against New Zealand dollar strength.

Exporters have been a vocal critic of the government and the Reserve Bank for not acting to bring down the currency, as a strong kiwi eats into the value of their receipts from foreign nations.

"Since the start of the week there's been heavy kiwi selling in the offshore session, then rampant buying and hedging demand through the day," says Mike Jones, currency strategist at Bank of New Zealand in Wellington.

"A lot of speculative guys have got out of the kiwi" using the greenback's strength "as the catalyst for their excuse."

The Dollar Index, a measure of the greenback against a basket of currencies, rose 03 percent to 53.59 today. Traders will likely pay more attention to a series of second-tier US data in Washington overnight, with greater attention being placed on the world's biggest economy.

The International Monetary Fund warned New Zealand's heated property market could spur a rate hike by the Reserve Bank if it fuels credit fuelled spending among households.

The Washington-based institution says the country's houses are already over-valued by 25 percent and has raised its assessment of the potential for a sharp fall in house prices to "low to medium", from "low" previously.

Traders are betting the Reserve Bank will hike the official cash rate 12 basis points over the coming 12 months from a record-low 2.5 percent, according to the Overnight Index Swap curve.

The kiwi was little changed at 83.01 Australian cents from 82.97 cents at 5pm yesterday and declined to 83.90 yen from 84.11 yen. It fell to 63.49 euro cents from 63.71 cents and decreased to 53.92 British pence from 54.12 pence.

(BusinessDesk)