NZ dollar falls to fresh 5-year low as investors seek safe haven assets on Greece uncertainty

Monday 29th June 2015

The New Zealand dollar fell to a fresh five year low as investors exited riskier assets in favour of safe havens as Greece and its creditors failed to reach agreement at the weekend ahead of a looming debt repayment deadline tomorrow.

The kiwi touched 67.90 US cents, its lowest level since June 2010, and was trading at 68.15 cents at 8am in Wellington, from 68.42 cents at the New York close and 68.85 cents at 5pm on Friday. The trade weighted index dropped to 71.51 from 71.93 on Friday.

Investors are selling higher risk assets such as the kiwi and favouring more liquid, stable currencies such as the US dollar and the yen. The euro broadly declined this morning after talks broke down between Greece and its lenders at the weekend, prompting fears no deal will be struck before an International Monetary Fund June 30 payment deadline, leading to debt default and the country's exit from the Eurozone.

"The only certainty we have at the moment is a massive uncertainty," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "We are in a market environment where fear dominates and uncertainty dominates and in that market environment there's a flight to quality assets. There's going to be a knee jerk flight to safety."

The kiwi may trade in a wide range between 66 US cents and 70 cents today, ANZ said.

Investors are favouring assets such as US dollars, US Treasuries, German Bunds, Japanese bonds and yen, Tuck said.

"You get out of risky assets with small doors and into safe assets with big doors where you know the liquidity is the best," he said. "Markets are going to be volatile. Things could turn on a dime depending on what headlines happen."

Greece's prime minister Alexis Tsipras has declared a bank holiday and restrictions on bank withdrawals after the European Central Bank at the weekend froze the level of emergency funding available to Greek banks. His call for an extension of the country's bailout so Greeks could vote in a referendum on proposed new terms was rejected by its creditors.

In other developments at the weekend, China's central bank cut interest rates to a record low. The People's Bank of China cut the benchmark lending and the deposit rate by a quarter point to 4.85 percent and 2 percent respectively. Required reserve ratios for some lenders were also lowered. China is New Zealand's largest trading partner.

While increased liquidity was positive, the move raised concerns about the extent of the slowdown in the Chinese economy, said ANZ's Tuck.

In New Zealand today, the Reserve Bank publishes its foreign exchange transaction data for May.

The New Zealand dollar jumped to 61.91 euro cents from 61.53 cents on Friday, was little changed at 89.13 Australian cents from 89.18 cents, slipped to 43.43 British pence from 43.74 pence. It dropped to a 17-month low of 83.22 yen and was trading at 83.56 yen at 8am from 84.95 yen on Friday.

BusinessDesk.co.nz

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