Kiwi jumps

New Zealands dollar jumped more than 1 percent against the US dollar and the yen on Thursday as investors searching for yield took the view that interest rates there were at or very near the bottom. In an otherwise subdued Asian session, the US dollar edged up against the Japanese currency and held steady against the euro, recovering from lows hit after US Treasury Secretary Timothy Geithner said he was open to expanding the use of the International Monetary Funds special drawing rights.
The kiwi surged to its highest in more than two months at $0.5774 and touched a four-month peak of 56.42 yen as New Zealand government debt yields surged in a sign investors were reining in expectations for lower rates. Carry trades involve borrowing in one currency with low interest rates to buy higher-yielding assets in another and were a popular play against the yen before the global financial crisis.
The New Zealand dollar rose 1.25 percent to $0.5745 and 1.68 percent to 56.16 yen. The Australian dollar fell 1.1 percent to NZ$1.2161, hitting a 10-week low and adding to broad strength in the kiwi. The dollar rose 0.2 percent from late US trading on Wednesday to 97.71 yen, after dipping to 96.90 yen in the previous session.
Geithner said he was open to expanding the use of the IMFs special drawing rights, comments investors initially interpreted as an endorsement of Chinas proposal this week to eventually replace the dollar as the worlds reserve currency with SDRs.
His comments pushed the dollar lower but it then regained ground after he said the dollar would keep its status as the top reserve currency for a long time. Geithner was probably commenting on Chinas call for expanding use of the IMFs SDRs rather than about the notion that the SDR may eventually replace the dollar as the worlds reserve currency, said Masafumi Yamamoto, head of foreign exchange strategy Japan at Royal Bank of Scotland.
"The remarks probably were not made from the standpoint of foreign exchange policy," Yamamoto said, adding Geithner probably did not mean to auropean bank said the reasons behind the flows were unclear, although they might be related to overseas investment by Japanese investors. With the end of Japans fiscal year next week, this is a time when special seasonal flows can appear, he said.
The yen has slid against high-yielding currencies in the past few weeks as gains in global stock markets have pointed to an improvement in investors risk appetite. Underscoring such sentiment, Asian shares were broadly higher. The rise in regional shares came after US stocks rose on Wednesday as unexpectedly strong housing and durable goods data fuelled hopes the economy is finally on the mend.