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NZ dollar little changed as investors seek safe havens

Friday 1st June 2012

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The New Zealand dollar was little changed as investors looked to put their money in low-risk assets such as government bonds as Europe's sovereign debt woes drag on, and ahead of US employment figures.

The kiwi slipped to 75.24 US cents from 75.36 cents yesterday, having shed 7.9 percent in the month of May. The trade-weighted index declined to 68.94 from 69.06.

The Dollar Index, a measure of the greenback against a basket of currencies, rose 0.3 percent to 83.06 after bonds rallied with the yield on US 10-year Treasuries falling 5 basis points to record-low 1.57 percent amid speculation the International Monetary Fund has started making contingency plans in the event Spain needs a rescue package. The IMF later denied the reports.

The yield on New Zealand's 10-year government bond fell to a record-low 3.45 percent yesterday.

"It's definitely risk-off - what tends to happen is hedge funds repatriate everything if they get losing trades, and that's exactly what's going on with the Dollar Index grinding higher," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional NZ. "The kiwi and the Aussie have held up remarkably well," he said referring to the trans-Tasman currencies colloquially.

Greek opinion polls showing increased support for pro-bailout parties helped improve investor sentiment. Markets are waiting on the June 17 election after the Mediterranean nation failed to elect a government last month. That's raised fears Greece will quit the euro-zone as it struggles to balance its high level of indebtedness with an appropriate level of budget cuts.

Traders are waiting for US non-farm payrolls which are expected to show the world's biggest economy added 150,000 jobs last month, and Chinese manufacturing figures which are likely to show a slowing pace of expansion.

New Zealand's first-quarter terms of trade are expected to show a 2.8 percent decline as export prices lag behind the rising cost of imports in the face of a weakening kiwi dollar.

The currency fell to a five-and-a-half month low 58.71 yen, and recently traded at 58.97 yen from 59.32 yen yesterday. It declined to 77.31 Australian cents from 77.58 cents yesterday, and crept up to 60.91 euro cents from 60.82 cents. It rose to 48.85 pence from 48.65 pence yesterday.

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