Attractive yields lure investors

ASB Bank's Tim Kelleher said the kiwi looks like a "sell" at around US71.50/72c.
ASB Bank's Tim Kelleher said the kiwi looks like a "sell" at around US71.50/72c.

The NZ dollar is heading for a 1.4 per cent weekly gain on a trade-weighted basis as the country's distance from Europe and the UK and its attractive yield continue to reel in investors chasing better returns.

The trade-weighted index rose to 76.38 at 5pm yesterday from 75.30 last week and was up from 75.80 on Thursday. Among the cross-rate gains was a 2.9 per cent jump against the British pound to 53.60 pence from 52.11p a week ago, up from 52.88p on Thursday.

The Reserve Bank's 2.25 per cent official cash rate is a stand-out in a world where many central banks are keeping borrowing costs near zero and may provide further stimulus in response to the UK's vote to quit the European Union.

Bank of England governor Mark Carney said he'll probably need to provide more stimulus to the UK economy. The yield on New Zealand's 10-year government bond was recently at 2.35 per cent, near a record low, though still more than the 1.45 per cent yield on US 10-year Treasuries, -0.11 per cent yield on EU bonds and -0.25 per cent yield for Japanese notes.

"There's ongoing demand for NZ Inc based on the fact we're as far as you can get from the UK and Europe and have better yields as well," said Tim Kelleher, head of institutional FX sales NZ at ASB Bank Institutional. Still, "the kiwi looks like this bounce is corrective on the charts, so I think we've got a bout of 'risk-off' coming."

The kiwi climbed to US71.47c at 5pm yesterday from US70.86c on Thursday and is heading for a 0.2 per cent increase against the greenback.

US markets might be quieter than usual with the Independence Day holiday falling on Monday.

ASB's Kelleher said the kiwi looks like a "sell" around US71.50/72c.

The local currency climbed to A95.70c from A95.25c on Thursday ahead of the Federal election today. Polling shows the vote will be close, and ASB's Kelleher said he was surprised at how little attention the election has been attracting.

The local currency rose to 73.53 from 72.79 on Thursday and advanced to 64.36c from 63.81c.

- BusinessDesk

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