NZ dollar weakens as greenback buoyed by improving economy, Fed tapering

Friday 27th December 2013

The New Zealand dollar weakened as the greenback is supported by an improving outlook for the US economy.

The kiwi slipped to 81.52 US cents at 8am from 81.62 cents at 5pm yesterday.

The yield on US 10-year Treasuries is edging higher, to reach around 3 percent, near the two-year peak of 3.007 percent hit in September. US bond yields are rising as an improving economy prompts the Federal Reserve to pull back on its US$85 billion a month bond-buying programme next year, making dollar bonds more attractive for investors.

"The kiwi is drifting a little bit lower as we have a US dollar that continues to strengthen," said Stuart Ive, senior advisor at OMF. "It's a reflection of the US economy strengthening. It adds to that picture that the US is on the path for future tapering."

Helping buoy sentiment about the US labour market, a report showed the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly a month.

The New Zealand and Australian dollars weakened on concern about the stability of the financial system in China, a major trading partner for the two nations, Ive said.

The People's Bank of China on Tuesday injected 29 billion yuan into the nation's financial system on concern rising yields for interbank lending could cause a credit crunch.

The kiwi edged lower to 91.73 Australian cents from 91.77 cents yesterday.

Most financial centres in Europe and the Americas were closed for Christmas on Wednesday with many also shut yesterday for Boxing Day.

Markets are "very, very subdued", Ive said. "There's not going to be a great deal going on."

The kiwi is likely to trade in a narrow range of 81.20 US cents to 81.85 cents today, he said. The local currency is edging below its 200-day moving average of 81.61 cents and is likely to continue to weaken should it close below that level today, he said.

The New Zealand dollar slipped to 85.37 yen from 85.47 yen yesterday after Japanese Prime Minister Shinzo Abe visited the controversial Yasukuni Shrine war memorial, straining relations with China and hurting investors' risk appetite.

In Japan, reports are scheduled today on manufacturing, household spending, inflation, unemployment, preliminary industrial production, retail sales and average cash earnings.

The kiwi weakened to 59.53 euro cents from 59.68 cents yesterday and dropped to 49.65 British pence from 49.80 pence. The pound strengthened after a report said a rising population, a low-tax regime and insulation for the worst of the eurozone's problems mean Britain is on course to overtake Germany as Europe's biggest economy within the next two decades.

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