The New Zealand Dollar Edges Closer to Record High on Interest Rate Bets

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The New Zealand Dollar Edges Closer to Record High on Interest Rate BetsThe New Zealand dollar surged close to an all-time high after the exports grew faster than expected while speculation grew that the Federal Reserve won’t hike interest rates anytime soon owing to uneven economic recovery.

The New Zealand dollar remained slightly unchanged at 87.85 U.S. cents by 1 p.m. in Tokyo after earlier jumping to 87.94, close to 88.43 touched on August 1, 2011, the highest level since exchange-rate restrictions were abolished in 1985.

“Given the momentum behind the kiwi at the moment, the prospects are really quite high in the near term that we reach the record,” Kymberly Martin, a market strategist at Bank of New Zealand in Wellington, told Bloomberg “Interest-rate differentials and low volatility are currently both in favor of the New Zealand dollar.”

The kiwi got a boost this June after the Reserve Bank of New Zealand Governor Graeme Wheeler hiked interest rates again for the third time this year.

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The yen rose to its highest level in five weeks against the dollar, also due to speculation on when interest rates may be increased.  The yen advanced 0.4 percent to trade at 101.35 per dollar after surging to 101.32, its strongest level since May 21. The Japanese currency also benefited from bets that the Bank of Japan won’t boost monetary stimulus. This is after official report indicated that consumer prices in Japan grew the most in over three decades as unemployment rate touched the lowest level since 1997.

The Deutsche Bank’s FX Volatility Index plunged to 5.28 percent in June 19, the lowest since August 2001. Lack of price volatility has spurred investors to borrow in currencies of countries with low interest rates and use the funds to purchase assets in economies where the rates are higher, such as in New Zealand. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Yashu Gola at yashu@forexminute.com