Dollar weakness amid an uncertain U.S. economic recovery has driven the New Zealand currency to within one cent of a record high against the greenback as the gap in interest rates widens.
Borrowing in dollars to buy the kiwi — a strategy known as the carry trade — has returned 3 percent this month, the most among major currencies. A dollar gauge fell to the lowest in five weeks after data yesterday showed the economy contracted more than estimated, supporting the Federal Reserve’s commitment to ultra-low interest rates. The Reserve Bank of New Zealand was the first central bank in a developed nation to exit record-low rates this year, raising borrowing costs three times.
“Whenever there’s a broad-based dollar selloff, the kiwi tends to outperform.” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “If you’re looking for carry, the kiwi is the go-to currency because of our hawkish central bank.”