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Thursday June 21, 2007 - 10:35:01 GMT
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FOREX-Yen hits 4-1/2 year low vs dlr; carry lifts kiwi

FOREX-Yen hits 4-1/2 year low vs dlr; carry lifts kiwi
Thu Jun 21, 2007 6:01 AM ET

(Updates prices, adds quotes, changes byline)

By Veronica Brown

LONDON, June 21 (Reuters) - The yen hit a 4-1/2 year low versus the dollar on Thursday while the New Zealand dollar surged to 22-year peaks as risk-hungry investors sold the low-yielding Japanese currency in favour of high return assets.

The dollar was a touch firmer against the euro with focus on the U.S. interest rate outlook. However, the data calendar is thin, with a business activity survey by the Philadelphia Federal Reserve due at 1600 GMT the main highlight.

The kiwi's rise at the expense of the yen is a classic way to exploit carry trades, as investors see Japanese interest rates remaining the lowest in the industrialised world. This contrasts starkly with New Zealand, which has the highest borrowing costs among developed economies at 8 percent.

Investors have been testing the New Zealand central bank's resolve to sell the kiwi currency again after it intervened in the market.

"I think the (kiwi) intervention was doomed to failure from the beginning. It's impossible to talk about your currency being weaker when you've got one of the strongest interest rates," BTM-UFJ currency economist Derek Halpenny said.

BOJ Deputy Governor Toshiro Muto reiterated on Thursday that the central bank would adjusted rates gradually, which analysts said kept weak yen sentiment intact.

"The Bank of Japan is doing nothing to change the market's view of a slow and steady approach to rate hikes. This really underpins Japan's status as a low yielding currency," said Kamal Sharma, currency strategist at Bank of America.

By 0950 GMT, the dollar was up 0.1 percent on the day at 123.61 yen, having hit a 4-1/2 year peak of 123.78, according to Reuters data .

The NZ dollar had risen to US$0.7658 , a 22-year post float high, before trimming gains to $0.7630. It also rose to a 20-year high against the yen .

The euro was steady at 165.44 yen , within sight of this week's record peak, while it was down 0.2 percent at $1.3376 . Data showing euro zone services growth at a 12-month high in June [nL19250738] had little impact on the single European currency.

YIELD AND DOLLAR

The Fed is on data watch for insight on what the trajectory for U.S. rates might be, as rising U.S. Treasury yields broadly erased prior expectations of a cut.

"(The Philly Fed survey) would not change the on-hold scenario for interest rates. It's very difficult for the Fed to raise interest rates when you have a housing problem. Should the Fed see the need to slow down the economy, a tremendous rise in bond yields has done part of the Fed's job," SEB currency strategist Johan Javeus said.

Higher-yielding currencies generally drew support. Sterling, which offers the highest interest rate in the G7, hit a 3-1/2 month high against the euro .

The pound was extending gains from Wednesday when the Bank of England's minutes showed bigger-than-expected opposition to keeping interest rates on hold this month. The minutes fanned expectations the BoE could raise rates as soon as July.

"We have this very carry-friendly environment going on. Higher global interest rates are something we are seeing not due to inflation but as response to strong growth and that should be a supporting factor for risk appetite in general," Javeus said.

(additional reporting by Chris Baldwin)

© Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.


 

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