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NZD heating up!

The NZD situation is heating up again. One of the drivers that makes the currency artificially strong are issuances of bonds called uridashi that are issued in NZD and sold to Japanese investors, who enjoy reaping the fat interest rate differential between New Zealand and Japan. The ironic thing about New Zealand's interest rate policy has been this: the RBNZ continues to hike rates (now at 7.25%!) in order to choke off excess in consumption and the housing market that threaten the country's current account deficit. At the same time, the higher rates make it more and more attractive for foreigners to hold paper from New Zealand - and the uridashi are one of the biggest instruments whereby foreigners can participate in the New Zealand market. This latter phenomenon hurts New Zealand's export markets by making the kiwi artificially strong. Apparently, overnight a rumour has developed that government officials from New Zealand have convinced a Japanese issuers of uridashi to stop a $600 million issue. NZD is likely headed for a big fall on this in the coming weeks and months - as the country desperately needs a weaker currency and will likely get increasingly aggressive about getting what it wants.

Source: Saxo

:) Falkor

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