Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Stocks Crossing The 13 Week Moving Average <$10.01 -- Ignore unavailable to you. Want to Upgrade?

To: James Strauss who wrote (10724)	3/26/2002 1:03:39 PM
From: Bucky Katt	Read Replies (1) \| Respond to of 13094

Kiwi, Krona Show Some Investors Want Rate Rises: Currency Focus By Mark Tannenbaum New York, March 26 (Bloomberg) -- A day after New Zealand and Sweden became the first industrialized countries to raise interest rates this year, their currencies rose to the highest levels in more than six months. The message: After a year of interest rate-slashing throughout the world flooded economies with cash, some investors want central bankers to start reversing those reductions to keep inflation in check as growth picks up. Australia and the U.K. may be next to raise rates, luring in capital, analysts say. The Australian dollar has surged to a six- month high on those expectations while the British pound has rebounded from a two-month low hit in January. Increasing interest rates is ``a proactive, preemptive type of move, which is seen as helping your currency,'' said Ihab Salib, who helps manage $1.5 billion in bonds at Federated Investors. He said the firm increased its holdings of the Swedish, Australian and U.K currencies six weeks ago. ``You should see currencies'' where central banks are ``starting to hike earlier do well,'' he said. That's a reversal from 2001 when currency traders wanted central banks to cut rates to fuel a return to growth. The U.S. dollar surged to a 15-year high against a basket of six major currencies last year as the Federal Reserve cut interest rates 11 times to a 40-year low of 1.75 percent. With evidence now mounting that many economies are recovering, currency investors bought the Swedish krona and New Zealand dollar, the Kiwi, after last week's rate increases. `Tighten Early' The rate increases may prevent a surge in inflation that would erode the value of their currencies, analysts say. Higher rates will also attract money to the countries' fixed income assets. ``Suddenly rate hikes which are being done for the appropriate reason are being viewed as currency positives,'' said Bob Sinche, chief currency strategist at Citibank. Rate increases are no guarantee to boost currencies. They can slow growth as they drive up companies' borrowing costs and crimp foreign investment into the stock market. The U.S. dollar tumbled in 1994 as the Fed raised rates. ``It's better to tighten early and moderately,'' Don Brash, president of the Reserve Bank of New Zealand, said after he raised the benchmark rate a quarter-point Wednesday to 5 percent. Hours earlier Sweden's Riksbank increased its benchmark rate a quarter-point to 4 percent to keep annual inflation around its 2 percent target rate. Riksbank head Urban Baeckstroem indicated he may raise rates again, saying the country has ``to be ready to cope'' with higher rates. Wool, Coal The increases pushed both the Kiwi and krona to their strongest levels against the U.S. dollar since August. The Kiwi rose to as high as 44.29 U.S. cents and the krona to as high as 10.16 per dollar. The Kiwi's 4.8 percent gain this year and the krona's 1.7 percent rise make them two of the four top-performing major currencies. The Australian dollar's 3.8 percent gain this year also puts it in the top four. Its rally has been fueled in part by speculation Australia will raise its benchmark rate from a 28-year low of 4.25 percent as soon as next month. The South African rand is the third best performer this year, up 3.3 percent. Rate increases aren't the only thing driving the Kiwi, krona and Australian dollar higher, analysts say. Growing global demand for wool, coal and other commodity exports from New Zealand and Australia also is boosting their currencies. The krona is benefiting from speculation Sweden will join the euro. 1994 Decline Analysts say the British pound, down 2.2 percent this year, will also start to rally as soon as the Bank of England raises rates. Some economists say the bank will start increasing its 4 percent benchmark rate in May. In 1994, the last year the Fed raised its benchmark rate by more than a percentage point, the dollar shed 8.4 percent against a basket of major currencies as investors dumped the country's stocks and bonds. That was its steepest drop in the past 12 years. Analysts say the economic recoveries in Sweden, Australia and New Zealand have taken hold enough to keep luring foreign investment even as rates rise. Both Australia's and New Zealand's economies grew by about 4 percent in the fourth quarter, more than double the 1.4 percent growth in the U.S. The potential drag on investment in stock markets may be outweighed by capital attracted to higher rates on deposits, said Dori Levanoni, manager of currency research at First Quadrant, which oversees $2 billion in foreign exchange in Pasadena, California. The firm has made bets that the Kiwi and Australian dollar will rise. Eight of 10 economists surveyed by Bloomberg News say New Zealand will increase its benchmark rate another half-percentage point by mid-May to 5.5 percent. That would put the rate 3.75 percentage points above the Fed's rate. ``As yields rise, we like those markets more,'' said Levanoni.