Bloomberg – Finance Minister Michael Cullen said hedge funds may be pushing up the New Zealand dollar, raising the risk of a sharper drop in the exchange rate when they sell.
Hedge funds appear to be “taking short-term positions” in the dollar to take advantage if New Zealand’s relatively high interest rates and “betting they can get out in time and not lose” when the currency declines, Cullen said in an interview in London yesterday. Investors shouldn’t forget the dollar had dropped below 40 U.S. cents in the past and “would be unwise to bet that that couldn’t happen again.”
New Zealand’s dollar has risen 10 percent since the start of July, the best performer of 16 major currencies tracked by Bloomberg. It reached a seven-month high of 67.24 U.S. cents yesterday on speculation overseas investors will continued to be lured by New Zealand’s interest rates.
Reserve Bank Governor Alan Bollard on Sept. 14 kept the benchmark interest rate at a record 7.25 percent and said he is unlikely to lower borrowing costs “for a considerable time” because of the outlook for inflation. The central bank wants to shift economic growth toward exports and away from domestic spending and the housing market, which is a source of inflation.
