N.Z. Swap Rate Near 2-Year High on Homes Data

An indicator for New Zealand’s key interest rate held near the highest in two years after house-price data added to signs the central bank will have to increase borrowing costs, auguring gains in the kiwi dollar.

Traders see about a 93 percent chance that the Reserve Bank of New Zealand will raise the benchmark rate from 2.5 percent by April, according to data on overnight-index swaps compiled by Bloomberg. Australia’s dollar reached the highest this month as Asian stocks gained, boosting demand for higher-yielding assets. Data showed that bearish bets on the currency climbed to a record last week.

“New Zealand’s strong property market is a reason for higher swap rates,” said Akira Takei, the head of the international fixed-income department in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $39 billion. “Cutting interest rates may be desirable for New Zealand’s policy makers to weaken the currency and boost exports, but they can’t.”

New Zealand’s two-year swap rate was at 3.4 percent as of 4:46 p.m. in Sydney after touching 3.43 percent on Aug. 9, the highest since September 2011. The contracts allow investors to exchange a floating rate with a fixed one or vice versa.

The kiwi dollar slid 0.2 percent to 80.24 U.S. cents. The Aussie fell 0.2 percent to 91.91 U.S. cents after touching 92.21, the highest since July 29. New Zealand’s currency climbed 2.6 percent and the Australian dollar jumped 3.4 percent last week, the biggest gain for both since December 2011.

The yield on Australia’s benchmark three-year government note added one basis point to 2.54 percent. The MSCI Asia Pacific Index of shares rose as much as 0.4 percent.

Limited Downside

“Swap rates could drift lower in the near term as investors seek carry from a fully priced N.Z. front end,” ANZ Bank New Zealand Ltd. analysts, including Chief Economist Cameron Bagrie, wrote in a research note today. “The downside for term swap rates seems fairly limited” in part owing to strong domestic data, they wrote.

Carry income refers to interest from holding an asset less the cost of funding the investment.

The Real Estate Institute of New Zealand said today that its property-price index was at 3,669.1 last month. While it fell 0.5 percent from a month earlier, it’s still near the record high of 3,686.9 set in May.

The number of wagers by hedge funds and other large speculators on a decline in the Aussie exceeded those on a gain by 76,779 on Aug. 6, the biggest-ever net shorts, according to figures from the Washington-based Commodity Futures Trading Commission dating back to 1993.

Aussie Outlook

The Australian dollar has weakened 9.4 percent this year, the biggest loser among the 10-developed market currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi has strengthened 0.2 percent.

The Reserve Bank of Australia reduced the overnight cash-rate target on Aug. 6 by a quarter percentage point to 2.5 percent. National Australia Bank Ltd. said the Aussie may slide to 86 U.S. cents by Dec. 31, compared with its past projection of 88.

“We now see at least one more cut in rates from the RBA,” Ray Attrill, the Sydney-based global co-head of currency strategy at NAB, said in an interview with Bloomberg Television, without giving an exact period. The Aussie may fall to 80 U.S. cents by the end of next year against the backdrop of a “softer commodity-price outlook,” he said.

Before it's here, it's on the Bloomberg Terminal.