USD Weakness Fueling NZD Carry Trade

Yesterday the US GDP Q/Q figures disappointed the market with the uncertain US economic recovery. As a result USD fell. This resulted in NZD/USD to within 1% of the record high as the gap between the two interest rates is widening. This widening of the interest rate gap between US and New Zealand is fueling NZD carry trade against USD.

Borrowing dollars to buy the kiwi in what’s known as a carry trade has returned 3.5 percent this month, the most among major peers. Expectations for currency swings slid to a record low after data yesterday showed the U.S. economy shrank more than estimated, supporting speculation the Federal Reserve will keep interest rates near zero. The Reserve Bank of New Zealand was the first central bank in a developed nation to exit record-low rates this year, raising borrowing costs three times.

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