Wednesday, October 26, 2005


New Zealand Makes 'US Look Frugal'

This Forex Asia site has the latest on the Kiwi. "The New Zealand dollar this month reached an eight-year high against the Japanese yen but the gains aren't sustainable. Signs that New Zealand's monetary tightening cycle is nearing an end, worries about the country's bulging current account deficit and an economic slowdown are set to drag the New Zealand currency lower."

"A fall in the kiwi, as the currency is known, could signal that other high-yielding currencies, including the Australian dollar and Canadian dollar, are also overvalued against the yen, some say. As Japan leaves deflation behind and the Bank of Japan looks to tighten monetary policy possibly in 2006, the wide gap between ultra-low interest rates in Japan and elsewhere is unlikely to widen any further, some analysts say. It is this interest-rate gap that has supported high-yielding currencies against the yen."

"At 0834 GMT, the kiwi was quoted at Y81.25, just below an eight-year high set earlier Wednesday of Y81.47. Analysts say that by early next year the New Zealand currency could fall as low as Y70."

"Hefty short-term interest rates of 6.75% have supported the kiwi by encouraging a steady flow of new uridashi bonds denominated in New Zealand dollars. Uridashi are non-yen denominated bonds sold to Japanese retail investors. These investors like the high yields offered by kiwi-denominated uridashi."

"RBNZ Governor Alan Bollard and New Zealand's Finance Minister Michael Cullen have already warned that the New Zealand dollar's exchange rate is unsustainable and analysts agree. 'There's a good case for the kiwi/yen to fall precipitously, and when it comes it could be nasty,' said Sean Callow, senior currency strategist at Westpac in Singapore. 'The current account deficit is a concern, because it can't be sustained and makes the U.S. look frugal by comparison,' he said."

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