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

 

Scoop Business: PayPal Stops Processing Mega Payments; NZX Listing Still On

PayPal has ceased processing payments for Mega, the file storage and encryption firm looking to join the New Zealand stock market via a reverse listing of TRS Investments, amid claims it is not a legitimate cloud storage service. More>>

ALSO:

Housing Policy: Auckland Densification As Popular As Ebola, English Says

Finance Minister Bill English said calls by the Reserve Bank Governor for more densification in Auckland’s housing were “about as popular in parts of Auckland as Ebola” would be. More>>

ALSO:

Crown Accounts: NZ Government Deficit Smaller Than Expected In First Half

The New Zealand government's operating deficit was smaller than expected in the first six months of the financial year, as the consumption and corporate tax take rose ahead of forecast in December, having lagged estimates in previous months. More>>

ALSO:

Fruit & Veg Crackdown: Auckland Fruit Fly Find Under Investigation

The Ministry for Primary Industries (MPI) is investigating a find of a single male Queensland fruit fly in a surveillance trap in the Auckland suburb of Grey Lynn... MPI has placed legal controls on the movement of fruit and some vegetables outside of a defined circular area which extends 1.5km from where the fly was trapped in Grey Lynn. More>>

ALSO:

Scoop Business: Westpac NZ Reaches $2.97M Swaps Settlement

Westpac Banking Corp’s New Zealand unit has agreed to pay $2.97 million in a settlement with the Commerce Commission over the way the bank sold interest rate swaps to farmers between 2005 and 2012. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

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