New Zealand Currency
New Zealand Currency
New Zealand Dollar Falls as Investors Trim Risky Bets (Correct)
By Emma O'Brien
(Corrects date of retail sales release in seventh paragraph.)
June 26 (Bloomberg) -- New Zealand's dollar fell as declining stocks and concern about losses tied to subprime mortgages in the U.S. prompted some investors to unwind riskier bets.
The currency is a favorite for the carry trade, where investors borrow cheaply in yen to put their funds in nations offering higher yields. New Zealand's record 8 percent official cash rate is 7.5 percentage points higher than Japan's overnight rate, luring traders to the nation's fixed-income assets.
``The global backdrop of rising risk aversion and softer equities'' should weigh on the New Zealand dollar, said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``The New Zealand dollar is a little bit bearish. Risk aversion is back in play and we saw a bout of carry trade unwind.''
The currency bought 76.61 U.S. cents at 10:03 a.m. in Wellington, from 76.69 cents in late Asian trading yesterday, when it rose to 76.85 cents, its highest since being allowed to trade freely in March 1985.
Carry trades have boosted New Zealand's dollar 33 percent against Japan's currency in the past year. The yen gained against all 16 most-actively traded currencies yesterday after Bear Stearns Cos., the second-biggest U.S. underwriter of mortgage bonds, led financial stocks lower on concern another of its hedge funds is in trouble.
New Zealand's dollar traded at 94.71 yen, from 94.61 late in Asia yesterday. It rose to 95.17 yesterday, the highest in more than 19 years.
Japan's Economy
The yen may gain from a record low versus the euro as a report tomorrow is forecast to show Japanese retail sales accelerated last month, fueling speculation the Bank of Japan will boost borrowing costs.
One-month implied volatility on options on the New Zealand dollar is at 10 percent, from 9 percent on June 20. The rise in volatility may discourage riskier investments such as carry trades as it implies an increase in exchange-rate fluctuation risk.
Bear Sterns dropped the most in the Standard & Poor's 500 Index yesterday after a Merrill Lynch & Co. analyst said it may have to salvage a second hedge fund.
The yen was also helped higher by a report released June 24 by the Bank of International Settlements, Hampton said. The bank said Japan's currency may strengthen and investors shouldn't be too complacent when betting against it, warning against carry trades.
The Reserve Bank of New Zealand's benchmark rate is the highest among Aaa-rated countries after Iceland.
New Zealand government bonds rose. The yield on the benchmark 10-year note fell 2 basis points to 6.73 percent, according to data compiled by Bloomberg.
To contact the reporter on this story:
Emma O'Brien in Wellington at eobrien6@bloomberg.net . Last Updated: June 25, 2007 18:26 EDT
New Zealand Dollar Falls as Investors Trim Risky Bets (Correct)
By Emma O'Brien
(Corrects date of retail sales release in seventh paragraph.)
June 26 (Bloomberg) -- New Zealand's dollar fell as declining stocks and concern about losses tied to subprime mortgages in the U.S. prompted some investors to unwind riskier bets.
The currency is a favorite for the carry trade, where investors borrow cheaply in yen to put their funds in nations offering higher yields. New Zealand's record 8 percent official cash rate is 7.5 percentage points higher than Japan's overnight rate, luring traders to the nation's fixed-income assets.
``The global backdrop of rising risk aversion and softer equities'' should weigh on the New Zealand dollar, said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington. ``The New Zealand dollar is a little bit bearish. Risk aversion is back in play and we saw a bout of carry trade unwind.''
The currency bought 76.61 U.S. cents at 10:03 a.m. in Wellington, from 76.69 cents in late Asian trading yesterday, when it rose to 76.85 cents, its highest since being allowed to trade freely in March 1985.
Carry trades have boosted New Zealand's dollar 33 percent against Japan's currency in the past year. The yen gained against all 16 most-actively traded currencies yesterday after Bear Stearns Cos., the second-biggest U.S. underwriter of mortgage bonds, led financial stocks lower on concern another of its hedge funds is in trouble.
New Zealand's dollar traded at 94.71 yen, from 94.61 late in Asia yesterday. It rose to 95.17 yesterday, the highest in more than 19 years.
Japan's Economy
The yen may gain from a record low versus the euro as a report tomorrow is forecast to show Japanese retail sales accelerated last month, fueling speculation the Bank of Japan will boost borrowing costs.
One-month implied volatility on options on the New Zealand dollar is at 10 percent, from 9 percent on June 20. The rise in volatility may discourage riskier investments such as carry trades as it implies an increase in exchange-rate fluctuation risk.
Bear Sterns dropped the most in the Standard & Poor's 500 Index yesterday after a Merrill Lynch & Co. analyst said it may have to salvage a second hedge fund.
The yen was also helped higher by a report released June 24 by the Bank of International Settlements, Hampton said. The bank said Japan's currency may strengthen and investors shouldn't be too complacent when betting against it, warning against carry trades.
The Reserve Bank of New Zealand's benchmark rate is the highest among Aaa-rated countries after Iceland.
New Zealand government bonds rose. The yield on the benchmark 10-year note fell 2 basis points to 6.73 percent, according to data compiled by Bloomberg.
To contact the reporter on this story:
Emma O'Brien in Wellington at eobrien6@bloomberg.net . Last Updated: June 25, 2007 18:26 EDT
posted by Robee Dobee at 1:22 AM
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