$NZ at new high since devaluation

Press, 7 August 1985, Page 34

$NZ at new high since devaluation

PA Wellington Firm domestic interest rates helped boost the New Zealand dollar through a record post-devaluation high on the foreign exchange market in Wellington yesterday, while offshore demand for Eurokiwi bonds continued unabated. The SNZ reached a high of $U50.5325/35 in active trading in Wellington after breaking through SUSO.S3 in London overnight. It was the first time since devaluation that the local unit has traded above SUSO.S3 for most of the day. The unit’s previous record was set on July 24 when it traded briefly at $U50.5305/ 15. The Reserve Bank indicative dollar exchange rate index, which measures the local currency against those of New Zealand’s main trading partners, was at a high of 68.9 yesterday morning, falling slightly to 68.8 in the early afternoon to finish at 68.9 at 3 p.m. The index was at 67.2 one week ago and 62.7 before the float. Dealers said high domestic interest rates had “set the barrel rolling” in New Zealand. Once that occurred, offshore investors stood to make twice - not just on the yield from high interest rates, but from the capital gain on an appreciating currency. Further, their continued interest in the local unit was the main factor behind

its strength. At yesterday’s levels, the currency looked to be setting itself up for a bout of profit-taking. Dealers said the SNZ was well supported, and managed to withstand some big corporate selling orders. Demand for Eurokiwi bonds did not look like diminishing in the near future. If it did, so would the currency. One dealer said the SUSO.S4 barrier would be easily surmountable if the already weak US dollar bottomed out. Meanwhile, the steadily appreciating currency was forcing up the price of forward cover. The cost for one month’s “insurance” has risen about 5 per cent in the last fortnight. Yesterday afternoon, the New Zealand dollar was worth 53c U.S., 74.3 c Australian, 38.7 p, 126 yen, and 1.50 marks. The United States dollar closed at 2.8245/55 marks compared with its 2.8210/30 local •opening and 2.8220/35 close in New York. The United States dollar ended little changed from Friday’s close as slow inter-bank buying faded in the afternoon session and the market remained divided on the currency’s near term trend, dealers said. It ended at 2.8230/50 marks from 2.8210/30 late Friday. Sterling drifted lower. Some profit-taking on short sterling positions against Continental currencies was seen after the sharp fall late last week, but the pound still ended mixed. It was quoted at a late $U51.3680/90, compared with

Friday’s close at $U51.3690/ 3710 and at 3.8620/75 marks after 3.8675/8760. In American trading on Monday, the United States dollar rose against most other major currencies. But the United States dollar briefly suffered a sharp decline against the West German mark after President Reagan said he had a second brush with cancer within the past month. Gold prices edged higher world wide. Republic National Bank in New York quoted gold as of 4 p.m. local time (8 a.m. yesterday, New Zealand time) at SUS 323 a troy ounce, up $1.50 from Friday’s late bid. After a lacklustre performance in European foreign exchange, the dollar was gradually moving ahead in the United States when Mr Reagan disclosed that tissue removed from his nose last week was a sun-induced skin cancer. After his comments, the United States currency rapidly fell by about 3 pfennings to 2.81 marks before stabilising and recovering some lost ground. Near the end of the session, the dollar was quoted at 2.8225 marks, down from 2.8325 marks late on Friday. Earlier in Europe, the dollar was quoted at 2.8250 marks, unchanged from the previous session. The dollar otherwise retained its advance against most other currencies. The Australian dollar closed easier in Sydney yesterday at $U50.7123/30 despite’ a strong start on expectations of a Eurobond issue inflow. The finish was down from an opening SUSO.7IBO/87 and Monday’s 0.7174/85 close.