$3.6b of maturing bonds threaten kiwi

The New Zealand dollar could suffer further losses when $3.65 billion of global retail bonds mature this month.

The kiwi has lost almost 8 per cent of its value against the greenback over the past three weeks as global markets have tumbled. It closed at US74.35c yesterday, having fallen as low as US74.01c during Friday's overseas session.

Forex investors continued to respond to the US credit market woes by unwinding risky "carry trade" positions where low-yielding Japanese yen are borrowed to invest in high-yielding kiwi dollars.

But as well as carry trades, the New Zealand dollar has also received key support over the past couple of years from uridashi and eurokiwi bonds. The bonds, issued to retail investors - in financial lore, Japanese housewives and Belgian dentists - offer exposure to New Zealand's world leading interest rates, as well as significant currency risk.

That risk is coming to the fore, with a total of $3.65 billion worth of the bonds reaching the end of their term this month.

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Until US sub-prime mortgage lending woes spilled into international markets three weeks ago, the maturing bonds were expected to either be rolled over or replaced by other forms of kiwi-denominated investments.

Bank of New Zealand currency strategist Danica Hampton said apart from $1 billion in previously announced issuance, there had been scant indication the maturities would be offset by new bonds.

"There is a risk that the turbulence in financial markets may discourage some investment."