Dollar May Weaken

The New Zealand dollar may weaken for a second day on speculation a rally to the strongest since it was freely traded in 1985 will spur the central bank to sell the currency again.

The kiwi, as the currency is known, lost as much as 1.8 percent on June 11 when the Reserve Bank of New Zealand sold for the first time in 22 years. It also fell after the bank intervened again on June 18 and June 22, according to two New Zealand lenders. Since June 11, the New Zealand dollar has gained 4.3 percent, buoyed by its record 8 percent interest rate.

``We do look for it to move lower,'' said John Horner, currency strategist at Deutsche Bank AG in Sydney. ``The ongoing prospect of further RBNZ intervention'' should make investors ``cautious on the New Zealand dollar.''

New Zealand's dollar bought 78.13 U.S. cents at 1:32 p.m. in Wellington, from 78.15 cents in Asia yesterday and as high as 78.41 cents July 3. It may fall to 77.90 cents today, said Danica Hampton, currency strategist at Bank of New Zealand Ltd. in Wellington.

New Zealand's currency rose against Japan's, trading at 95.92 yen, from 95.74 yen yesterday, when it reached 96.01, the highest since October 1987.

Holiday Sales

June 11 was a public holiday in Australia and around 41.1 million Americans may take vacations this week to celebrate the July 4 Independence Day, according to the American Automobile Association.

There's concern about the central bank ``getting into the market to take advantage of the thin liquidity with Independence Day,'' Hampton said. ``If you're long kiwi, you might see it dip if they intervene. If you like kiwi, you'll hold off because it means you might be able to get into the market at a better price.'' A long positions is a bet a currency is going to rise.

Should the Reserve Bank intervene again, the New Zealand dollar may initially fall and then rise as investors take advantage of the opportunity to buy it at cheaper levels, Hampton said.

New Zealand government bonds fell. The yield on the benchmark two-year bond rose 1 basis point to 7.33 percent, according to data compiled by Bloomberg. Bond yields move inversely to bond prices. A basis point is 0.01 percentage point.

source:bloomberg.com