Kiwi, Aussie are best performers as hunt for yield picks up pace

[SYDNEY] The currencies of New Zealand and Australia were the top performers among 16 major counterparts as the nations' bond yields increased relative to US Treasuries this week.

The kiwi dollar headed for a 1.3 per cent advance since July 1, narrowing the yen's lead as the biggest gainer against the greenback, while the Aussie was set for a six-week advance that would be the longest rally in almost two months.

Traders pared bets on a New Zealand interest-rate cut next month after the central bank said further reductions could pose a risk to financial stability by throwing fuel on an overheated housing market.

"There is a strong appetite for high-yielding high-quality currencies and not many of those exist now," said Imre Speizer, a market strategist at Westpac Banking Corp in Auckland. "The Kiwi has been also been boosted by RBNZ Grant Spencer's speech."

New Zealand's dollar rose 0.5 per cent to 72.66 US cents at 1:12pm in Sydney, after touching 72.77, the highest since June 24. The Aussie gained 0.3 per cent 75.02 cents.

Reserve Bank of New Zealand deputy governor Grant Spencer late Thursday said that the central bank needs to carefully consider risks to financial stability when deciding the future path of monetary policy. That pushed traders to pare their bets on a Aug 11 rate cut to 40 per cent from 60 per cent at the start of this week.

Five-year yields are 1.04 percentage points higher in New Zealand than they are in the US, providing the biggest premium since June 27. Australia's bond yields are 65 basis points greater than Treasuries.

The two currencies could nudge "higher in the short term" if the US payrolls data misses expectation, according to Commonwealth Bank of Australia's currency strategist Elias Haddad.

BLOOMBERG