N.Z. Dollar at 2 1/2-Year High Against Aussie on Sales

New Zealand’s dollar touched a 2 1/2-year high against Australia’s as the smaller nation’s retail sales grew faster than economists predicted, boosting bets its central bank will raise interest rates.

The so-called kiwi climbed to its strongest in 17 months against the greenback as non-resident holdings of the nation’s sovereign debt rose to the most since October 2009. The Australian and New Zealand dollars are both poised to gain against the U.S. currency this week as speculation global growth will quicken boosts demand for higher-yielding assets.

“The New Zealand economy is in recovery and outperforming its peers, and the kiwi dollar is likely to push higher,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “The Reserve Bank has a mild tightening bias, and in a world of easy policy and quantitative easing, a tightening bias is all you need to stand out from the pack.”

New Zealand’s currency traded at NZ$1.2180 per Aussie dollar at 4:52 p.m. in Sydney, after climbing to NZ$1.2143, the highest since July 2010. It added 0.1 percent to 85.12 U.S. cents after touching 85.34, the most since September 2011. The kiwi advanced 1.9 percent against the greenback this week. It lost 0.3 percent to 78.81 yen today.

Australia’s dollar rose 0.1 percent to $1.0366, poised for a 0.5 percent weekly advance. It slid 0.2 percent to 95.98 yen and has gained 0.4 percent this week.

The New Zealand dollar’s trade-weighted index rose as much as 0.5 percent to 77.50, the highest since it was freely floated in 1985.

Swap Rates

Retail sales adjusted for inflation surged 2.1 percent in the three months through December from the third quarter, Statistics New Zealand said today. The gain was the most since the fourth quarter of 2006 and exceeded the 1.4 percent median estimate in a Bloomberg News survey of 10 economists.

A Credit Suisse Group AG index showed the Reserve Bank of New Zealand will probably increase borrowing costs by 29 basis points over 12 months.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to interest-rate expectations, slid two basis points to 3.03 percent after touching 3.07 percent, the highest since April 2. It has climbed 35 1/2 basis points this year.

The kiwi may rise toward NZ$1.17 per Aussie dollar by mid-year and NZ$1.13 by year-end, said Bank of New Zealand’s Jones. It will gain to 87 U.S. cents by Dec. 31, he said.

The Aussie dollar maintained its weekly advance after Reserve Bank of Australia Assistant Governor Christopher Kent said China’s demand for commodities will grow “strongly” for some time. There are signs that growth in China is stabilizing, he said. The nation is Australia’s largest trading partner.

Australia’s benchmark 10-year bond yield fell seven basis points to 3.52 percent, ending three days of increases.

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