US fears behind kiwi's rise, say experts

Growing concerns the United States' credit rating may be revised lower and the greenback could lose its status as the world's reserve currency are driving the weakness in the US dollar which has pushed the kiwi to fresh highs, currency watchers say.

The kiwi hit yet another multi-month peak against the greenback early yesterday, touching US65.95c before easing over the local session to close at US65.47c.

While the kiwi has been broadly stronger against most other currencies, the real story has been the dramatic fall in the US dollar.

The greenback is under pressure over a number of fronts. The US Federal Reserve's ongoing "quantative easing" essentially amounts to printing more money and debases the currency while the so called "green shoots of growth" are causing investors to eschew the "safe haven" of US dollar holdings in favour of riskier but more profitable investments such as the New Zealand dollar.

"More recently it's continued fear that the US is going to lose its triple A credit rating," said Royal Bank of Canada currency strategist Sue Trinh.

A related issue was that "with speculation of a downgrade, Asian central banks, China in particular, will continue to diversify their huge stockpile of reserves out of US dollars and into other alternatives".

Westpac market strategist Imre Speizer said concerns over the US credit rating and the US dollar's reserve currency status were creeping into the market and that was affecting the greenback's "safe haven" appeal.

"Almost every day you come into work there's some Government overseas having a mumble about how the US dollar shouldn't be the reserve currency.

"The sentiment's there, we've witnessed it in the market on a few days, and you'd have to expect that some element of this dollar weakness is down to that although it's hard to strip out," said Speizer.

While the US dollar's weakness was the major story, RBC's Trinh said some domestic factors were helping to drive the kiwi's performance including Standard & Poor's decision to move New Zealand's AA+ credit rating from negative outlook to stable, and the market's growing view that the Reserve Bank will pause rather than cut by 25 basis points at next week's Monetary Policy Statement rate call.

"If we're right on that, combined with S&P," said Trinh, "the kiwi has further to run."