NZ dollar advances as higher yields lure investors

The New Zealand dollar advanced even amid fears of a global slowdown, as the country's higher relative interest rates lured investors.

The kiwi gained to 66.84USc  at 8am in Wellington, from 66.69USc  at 5pm yesterday. The trade-weighted index increased to 72.53 from 72.35 yesterday.

Fears of a global economic slowdown and concerns about stress in the banking system increased the demand for safe haven assets, such as the Japanese yen. The New Zealand dollar, which typically weakens in times of global growth concerns, remained broadly resilient as negative interest rates in some of the world's largest economies mean the positive yield on offer in New Zealand holds enough allure for investors.

"The Japanese yen continues to significantly outperform its peers," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "The New Zealand dollar has had a fairly turbulent night but remains remarkably resilient in the face of weak global risk appetite.

"The decline in global interest rates is serving to increase New Zealand's interest rate differential," she said. "New Zealand's positive growth differential also probably appears more appealing with each data disappointment offshore."

Moody's Investors Service said yesterday it's comfortable with its Aaa credit rating on New Zealand with a stable outlook, as it anticipates the impact from lower commodity prices will be offset by strength in areas of the economy such as tourism and education services. The local economy is doing well and is viewed very favourably by financial markets, Moody's said.

In New Zealand today, food price data for January is released at 10:45am. In Australia, Reserve Bank governor Glenn Stevens is giving testimony to parliament today. Chinese markets remain closed for the week-long Lunar New Year holiday,

The New Zealand dollar rose to 94.19Ac from 93.98Ac yesterday, increased to 46.23 British pence from 45.86 pence, advanced to 4.3921 yuan from 4.3822 yuan, and slipped to 58.93 euro cents from 59.07 cents.

The local currency touched ¥73.19, its lowest level since a sharp decline in August last year, and was trading at ¥74.89 at 8am from 75.22 yen yesterday.

(BusinessDesk)