The third section discusses some factors that contribute to the high levels of global turnover in the NZ dollar
. New Zealand has open capital markets that allow participants to invest and express trading views through NZ dollar
He said earlier there was an unwinding of aussie-kiwi long positions, which kept the NZ dollar
bid as people liquidated out of Australian dollars.
This is to be expected as higher interest rates in NZ attract foreign investment and drive up the price of the NZ dollar
on foreign exchange markets.
Preceding discussion has focused on mortgage and credit funding as a source of demand and supply changes for the NZ dollar
and therefore, in the most immediate sense, of changes in the foreign exchange rate.
In 2012, the New Zealand economy (and the NZ dollar
) will likely be one of the better performing ones among developed countries.
Around 5pm today the NZ dollar
was at US72.74c, up from US72.61c at 8am and US72.42c at 5pm Friday.
Naturally, higher interest rates will also pump up demand for the New Zealand dollar through increased use of carry trades – where investors investors borrow low-yielding currencies to invest in higher-yielding currencies (like the NZ dollar
* Extension of the range of securities eligible for acceptance in the Reserve Bank's domestic liquidity operations to include: NZ-registered NZ dollar
AAA-rated securities, including Residential Mortgage-backed securities, and AA-rated NZ government sector debt - including Government agencies, SOEs and Local Authorities.
Australian Dollar 1.64 Bulgarian Lev 2.15 Canadian Dollar 1.62 Croatian Kuna 8.37 Czech Koruna 28.06 Egyptian Pound 10.11 Euro 1.13 Hungarian Forint 318.51 NZ Dollar
1.87 Polish Zloty 4.61 S African Rand 15.06 Swiss Franc 1.39 Thai Baht 47.20 Turkish Lira 3.03 UAE Dirham 5.67 US Dollar 1.57
Continued strength in most of New Zealand's international markets and a return to a downward trending NZ dollar
exchange rate should support this rebalancing.
In the absence of offshore NZ dollar
bond issuance, the demand for credit in New Zealand would need to be met by an increase in savings from domestic sources or from other non-resident sources which would require higher interest rates (i1 instead of i2 in figure 15), implying less investment, more saving, and a smaller current account deficit.