FOREX-New Zealand dollar shines in subdued currency market

Thu Jun 26, 2014 7:55pm EDT

Related Topics

* NZD hits three-year highs, eyes post-float peak

* Dollar index flat on the day, down just 0.2 pct this week

* U.S. consumer spending data tepid, suggest slower recovery

By Ian Chua

SYDNEY, June 27 (Reuters) - The New Zealand dollar hovered at its highest in nearly three years early on Friday, having taken on a starring role in a subdued currency market as investors sought higher-yielding currencies.

The kiwi rose as far as $0.8790, a high not seen since early August 2011, before edging back to $0.8780. It was near a post-float high of $0.8842.

Traders said the move highlighted the hunt for yield as investors looked for better returns in a generally low global interest rate environment.

With the Reserve Bank of New Zealand in a tightening cycle, the kiwi has become somewhat of a beacon to many investors. The RBNZ's cash rate is currently at 3.25 percent, among the highest in the developed world.

In contrast, the latest U.S. consumer spending data was disappointing and came close on the heels of a shockingly steep downward revision to first-quarter growth.

It prompted some analysts to cut their forecasts for U.S. growth and suggested the Federal Reserve should be in no hurry to tighten policy.

Analysts at JPMorgan said the U.S. report indicated that real consumption growth was quite anaemic.

"This lends some downside risk to our 3.0 percent GDP call for this quarter  a call which we are maintaining for now," they wrote in a note to clients.

Yet, St. Louis Federal Reserve Bank President James Bullard, reiterated his belief that raising rates by the end of the first quarter in 2015 will be appropriate, based on his own forecast that U.S. growth will register 3 percent for the next four quarters.

In any case, there was no real action in the G3 currencies with markets convinced that the Fed, European Central Bank and Bank of Japan will keep monetary policy loose for some time yet.

The U.S. dollar was little changed against a basket of major currencies. The dollar index traded at 80.208, on track for a modest 0.2 percent fall this week.

The euro drifted down a bit to $1.3612 from Thursday's high of $1.3652. Against the yen, the dollar slipped to 101.65 after recovering from a near one-month low of 101.48.

The euro also nursed slim losses against the yen, but at 138.34 was off a two-week trough of 137.92 plumbed overnight.

Sterling stood within striking distance of a near six-year peak, having gained ground after the Bank of England's measures to cool Britain's housing market did not alter interest rate expectations.

The BOE imposed its first limits on how much most people can borrow to buy a home in a bid to stem increasing levels of debt and rapidly rising house prices.

The pound traded at $1.7026, edging closer to the peak of $1.7064 set on June 19.

Overall, the currency market remains in the grips of a summer lull with the World Cup a major distraction for many traders.

Headlines such as "World Cup: How to Skip Work to Watch U.S. vs Germany" and a seemingly endless stream of stories about controversial Uruguay striker Luis Suarez highlight just how influential the game is.

Germany won 1-0 over the USA in the end. (Editing by Stephen Coates)

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