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New Zealand dollar surges to 25-year high vs US dollar, lifted by high interest rates

New Zealand dollar surges to 25-year high vs US dollar, lifted by high interest rates

The New Zealand dollar surged to a 25-year high against the U.S. dollar Tuesday as global investors have been drawn to the country's high interest rates. Dealers said the local currency could rise further.
The currency, also called the Kiwi, touched US$0.8152, levels last seen in 1982 before the currency was floated in March 1985. The record level passed the previous high of US$0.8110, set last July.
The local unit has been mainly supported by the high yield on Kiwi-denominated assets, with New Zealand's benchmark interest rate sitting at 8.25 percent _ the highest in the developed world after Iceland.
The New Zealand dollar also has been supported by a broadly weaker U.S. dollar, a stronger Australian dollar, solid commodity prices and a resurgence in fund-based buying from Japan, dealers said.
"What we're going to probably continue to see is that saw-tooth action where it continues to grind up, but we see these pullbacks as time goes along," said HIFX Director of Trading Mike Hollows.
He said a fall toward US$0.8020 is conceivable, but that would be within the New Zealand dollar's current uptrend.
"For the Kiwi to meaningfully turn around, I'd say we'll probably need the Aussie dollar to also have some kind of turnaround against the U.S. dollar," he said.
The Kiwi came off its highs after a Reserve Bank survey on inflation expectations came in flat from the fourth quarter. Though inflation pressures remain high, the survey wasn't as strong as some in the market had expected.
Some dealers think the Kiwi will come in for a sharp correction at some point as the domestic economy continues to slow.
"Without any doubt the balance of the domestic risks are to the downside ... (the Kiwi) could get up toward the 83-U.S. cent level but it would be a bit of an exhaustive move," said ANZ senior dealer Alex Sinton.
The Reserve Bank is to issue its quarterly review of monetary policy next week. Economists are picking no change in its key interest rate.


Updated : 2021-02-26 09:06 GMT+08:00