N.Z. Dollar Approaches Record High on Exports; Yen Strengthens

New Zealand’s dollar climbed to within 0.7 percent of a post-float record after stronger-than-expected exports added to the currency’s allure amid signs of an uneven recovery in the U.S. economy.

New Zealand’s currency rose this month after Reserve Bank Governor Graeme Wheeler increased interest rates for a third time in 2014. Borrowing U.S. dollars to buy the kiwi in what’s known as a carry trade has returned 8.4 percent this year, the most among developed-nation peers. A gauge of the dollar against 10 major counterparts was set for the worst first-half performance in three years as weaker-than-expected U.S. economic data supported bets borrowing costs will remain near zero. The yen advanced to a five-week high versus the greenback.

“Given the momentum behind the kiwi at the moment, the prospects are really quite high in the near term that we reach the record,” said Kymberly Martin, a market strategist in Wellington at Bank of New Zealand Ltd. “Interest-rate differentials and low volatility are currently both in favor of the New Zealand dollar.”

The New Zealand dollar was little changed at 87.85 U.S. cents as of 1 p.m. in Tokyo after climbing to 87.94, approaching the high of 88.43 set on Aug. 1, 2011, that was the strongest since exchange-rate controls were scrapped in 1985.

The Bloomberg Dollar Spot Index lost 0.2 percent to 1,005.91 after sliding to 1,005.80, a level unseen since May 9. The gauge, which tracks the greenback against 10 major counterparts, has fallen 1.3 percent since Dec. 31, the first drop within the first six months of any year since 2011.

Low Volatility

The yen rose 0.4 percent to 101.35 per dollar after climbing to 101.32, the highest since May 21. Implied three-month volatility in dollar-yen fell to 5.64 percent yesterday, the least in data compiled by Bloomberg going back to December 1995. The U.S. currency traded at $1.3623 per euro, down 0.2 percent this week.

Deutsche Bank AG’s FX Volatility Index fell to 5.28 percent on June 19, the lowest in figures dating back to August 2001.

The absence of price swings is encouraging investors to borrow in currencies where interest rates are low and use the proceeds to buy assets in economies where they are relatively high, such as in New Zealand, by reducing concern that large exchange-rate movements would wipe out any profits.

New Zealand’s 3.25 percent key rate compares with near-zero benchmarks in the U.S., Japan and the euro area. The nation’s central bank is the only one among advanced economies to have tightened monetary policy this year.

Fed Outlook

Federal Reserve Chair Janet Yellen said on June 18 U.S. policy makers plan to keep borrowing costs low for a “considerable time” after the end of bond purchases.

Government reports this week showed U.S. gross domestic product shrank more than previously estimated in the first quarter, while durable goods orders unexpectedly declined. Citigroup Inc.’s U.S. Economic Surprise Index, a gauge of whether data beat or fell short of economists’ forecasts, dropped to minus 23.10 yesterday, the lowest since May 1.

The yen gained amid speculation the Bank of Japan will refrain from boosting monetary stimulus after official data showed Japanese consumer prices rose last month at the fastest pace in more than three decades, while the unemployment rate fell to the lowest since 1997.

“The unemployment rate is a little lower and it seems to be smooth sailing for the economy,” said Yuji Saito, a Tokyo-based director of foreign exchange at Credit Agricole SA. “It’s hard to sell the yen in the current environment because there’s no need for the BOJ to act any time soon. The yen is being bought.”

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