New Zealand’s dollar will weaken against its Australian counterpart because the nation’s economic growth and interest-rate increases will lag behind that of its neighbor, Finance Minister Bill English said. “They’ve got a stronger growth outlook, their interest rates are likely to rise sooner,” English said in an interview during a visit to Hong Kong, where he is meeting investors. In the coming 18 months, New Zealand’s currency is “going to be weaker relative to the Australian dollar,” he added. The New Zealand dollar has surged 14 percent in the past three months against the greenback, the best performance among the 16 most-active currencies, on speculation benchmark borrowing costs will rise as the economy recovers. It climbed 3.8 percent against the Australian dollar. The currency, known as the kiwi, fell as much as 0.2 percent to 82.21 Australian cents before trading at 82.49 at 3:44 p.m. in Wellington. New Zealand’s dollar gained to 72.06 U.S. cents from 71.60 cents last week. “His comments make a lot of sense,” said Thomas Harr, a strategist at Standard Chartered Plc in Singapore. “The recovery in Australia looks more broad-based than in New Zealand, and the chances for an interest rate hike are bigger in Australia. We’re more bullish on the Aussie than the kiwi.” He forecasts the Australian dollar will strengthen to 92 U.S. cents by the end of the year, compared with 87.38 cents today, while New Zealand’s currency will rise to 73 cents. ‘Another Down Leg’ New Zealand’s economy expanded for the first time in six quarters in the three months to June 30, ending the nation’s worst recession in three decades. English said the economy, which counts on exports for 30 percent of its output, risks another contraction if the global economic recovery falters, and the strong kiwi is “quite a challenge” for exports. HSBC Holdings Plc Chief Executive Officer Michael Geoghegan is convinced there will be a second global economic slump and as a result doesn’t want the bank to grow too fast, the Financial Times reported, citing an interview with him. “There’s some risk of another down leg depending on how the recovery shapes up,” English said. “Our interest rates may well stay lower for longer than a number of other countries in the region. Our commodity price basket is largely agricultural and forestry related. The price track for those is fairly uncertain.” Low Rates The central bank has kept interest rates at a record-low 2.5 percent since April and Governor Alan Bollard has said he won’t raise borrowing costs until late 2010. Traders are, however, betting that the bank will increase its benchmark 1.5 percentage points over the next 12 months, according to a Credit Suisse index based on swaps trading. New Zealand’s economy, which began contracting in the first quarter of last year, emerged from recession in the second quarter when it grew 0.1 percent, Statistics New Zealand said Sept. 23. English said his government has been underpinning the recovery through a stimulus package that combines tax cuts and government investment. New Zealand plans to pull back the stimulus from the middle of next year, he said. He forecasts unemployment will peak at under 8 percent after a Sept. 30 report showed business confidence rose to the highest in more than 10 years last month. Debt Sale English is meeting with investors in Hong Kong and London as his administration prepares to more than double outstanding government debt by selling about NZ$40 billion ($28.5 billion) of bonds over the next four years. Gross debt will peak at 40 percent of gross domestic product, he said. A larger debt market will make New Zealand’s bonds more attractive to foreign investors as a recovering global economy spurs interest in higher-yielding assets, English said in an interview from New York on Sept. 4. The U.S. dollar return on New Zealand debt maturing in one to three years of 28 percent is the world’s best since Dec. 31, according to indexes compiled by the Paris- based European Federation of Financial Analysts Societies. “Just at a time when government expenditure was rising quite quickly on the back of 15 years of surpluses, our revenue has taken considerable shock,” he said. “It looks about 10 years until the books are back in surplus. We’d prefer to get to surplus more quickly.” To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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