Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


NZ’s rising interest rates likely to lure Mrs Watanabe back

NZ’s rising interest rates likely to lure Mrs Watanabe back to carry trade, RBNZ says

By Paul McBeth

May 14 (BusinessDesk) - New Zealand’s rising interest rates are likely to see a resurgence of the carry trade, driven by so-called retail investors who can borrow cheaply in their home currency, such as the yen, to invest in higher yielding currencies such as the kiwi dollar, the Reserve Bank says

Reserve Bank deputy governor Grant Spencer told Parliament’s finance and expenditure select committee that while rising interest rates are largely priced into the kiwi dollar, the currency is still likely to attract retail investors in countries such as Japan.

“A lot of people in the market would say the increase in interest rates, given how well we’ve signalled what’s coming, a lot of that’s already built into the exchange rate,” Spencer said. “The part that may be not built into the exchange rate is the response from retail investors, like the Japanese households who would be responding more to just the rate they see on the page, comparing different countries.”

The carry trade has been muted in recent years, with limited issuance of Kauri, Eurokiwi and uridashi bonds, variants of New Zealand dollar-denominated bonds typically sold in offshore markets. Part of that has been due to the high cost of swapping foreign currency funding into New Zealand dollars, given the strength of the kiwi.

Annual Kauri bond issuance more than doubled to $4.8 billion in 2013, reducing what’s been an elevated hedging cost since the global financial crisis, and could rise further because investors are “incentivised by the outlook for interest rates to rise to levels that are significantly higher than most other advanced economies,” the Reserve Bank said in its six-monthly financial stability report today.

New Zealand 10-year government bonds are yielding about 4.3 percent while Japan’s 10-year benchmark is yielding about 0.6 percent.

Reserve Bank governor Graeme Wheeler last week raised the prospect of intervening in currency markets to take the wind out of an elevated kiwi dollar as commodity prices come off. Persistent strength in the New Zealand dollar will likely keep a lid on future interest rate hikes, as it cools tradable inflation, which has been negative on an annual basis since June 2012.

Wheeler embarked on tighter monetary policy in March, and has hiked the official cash rate twice to 3 percent. The Reserve Bank projects the 90-day bank bill rate, seen as a proxy for the OCR, rising to 4 percent by the end of 2014 and 5.3 percent by March 2017.

The kiwi dollar has gained 2.4 percent to 88.29 yen this year, hitting a six-and-a-half year high in April 1. It has climbed 5.3 percent against the greenback this year, recently trading at 86.41 US cents.

Wheeler today told politicians he would expect the slump in dairy prices this year to start showing up in future terms of trade figures, which have been at a 40-year high largely on Asian demand for whole milk powder and infant formula.

“When we look at current other commodity exports, other than logs, which look to have come off just recently it looks as if the other commodity exports are still retaining their current price levels,” Wheeler said.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Future Brighter Money: RBNZ Releases New Bank Note Designs

New Zealand’s banknotes are getting brighter and better, with the Reserve Bank today unveiling more vibrant and secure banknote designs which will progressively enter circulation later next year. More>>

ALSO:

Commerce: Supermarket Inquiry Finds No Breaches By Countdown

The Commerce Commission inquiry into anti-competitive behaviour by Countdown supermarkets, alleged by former Labour Party MP Shane Jones, has found nothing to warrant prosecution, although it warns supermarkets to take care in the way they communicate... More>>

ALSO:

Crown Accounts: English Flags ‘Challenge’ To Budget Surplus

Finance Minister Bill English is warning next month’s half yearly fiscal and economic update from the Treasury may not forecast a budget surplus, saying that returning the government’s accounts to surplus in 2015 will be “a challenge”, given the decline in commodity prices and weak global inflation. More>>

ALSO:

March 2015: Netflix To Launch In Australia And New Zealand

World’s Leading Internet Television Network to Offer Original Series, Movies, Documentaries, Stand-Up Comedy Specials and TV Shows for Low Monthly Price More>>

ALSO:

Price Of Cheese (Is Up): Dairy Product Prices Fall To Five-Year Low

Dairy product prices fell in the latest GlobalDairyTrade auction to the lowest level in more than five years, led by declines in rennet casein and skim milk powder. More>>

ALSO:

Gordon Campbell: On The Australians Scoring Trade Points Against Us With The Chinese

It hasn’t been a great year for Trade Minister Tim Groser... To top it off, Australia has just signed a FTA with China that has far better provisions on dairy exports than what New Zealand currently enjoys in our own FTA with China. More>>

ALSO:

Iwi & Local Consultation: Oil And Gas Block Offer 2015 Begins

Energy and Resources Minister Simon Bridges today announced the start of the Block Offer 2015 process for awarding oil and gas exploration permits. More>>

Industrial Action: Stats NZ Throwing Public Money Away Duplicating Data

The Public Service Association (PSA) says Statistics NZ are throwing money away by collecting the same data twice for official statistics such as the Consumer Price Index... As part of the ongoing industrial action, field interviewers who are PSA members are continuing to collect data, but are not sending it through to Statistics NZ. More>>

ALSO:

Other Stats:

Space: Rosetta's 'Philae' Makes Historic First Landing On A Comet

After more than a decade traveling through space, a robotic lander built by the European Space Agency has made the first-ever soft landing of a spacecraft on a comet. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news