NZ dollar weakens on worries recent rally overdone

Tuesday 14th June 2016

The New Zealand dollar retreated against the greenback and the pound on speculation the kiwi's rally in response to events in the United Kingdom and the United States has been overdone.

The kiwi slipped to 70.29 US cents, from 70.44 US cents at the start of the day and from 70.34 cents late yesterday. It traded at 49.55 British pence, having earlier reached a 14-month high of 50.08 pence, from 49.57 pence yesterday.

The local currency surged to as high as 71.46 US cents on June 9 after the Reserve Bank kept interest rates unchanged and signalled increased concern with the overheated housing market, taken as a sign further rate cuts are less likely. The previous week it soared almost 1 US cent after unexpectedly weak US non-farm payrolls figures. The pound has weakened and global risk appetite has declined after polls suggested more Britons favour leaving the European Union.

"From a technical perspective the kiwi was overdone at these levels," said Grant Bodle, senior FX dealer at HiFX. "We think it could go lower in the short term."

Risks include an unexpected rate hike after the Federal Open Market Committee meeting, given that "it is pretty much 100 percent factored in that they won't hike," he said. The greenback could rise even if the Fed doesn't hike but signals it will raise interest rates in July or September, he said.

Britons go to the polls to vote on the so-called Brexit on June 23. Support for leaving has risen in recent polls, coinciding with reports that refugees have targeted remote beaches in the UK and stoking concern Britain might end up importing Europe's refugee crisis, Bodle said. "The pound has been getting its tail whipped because of these polls," he said.

The New Zealand dollar fell to 95.01 Australian cents from 95.33 cents and declined to 62.23 euro cents from 62.53 cents yesterday. It gained to 4.6274 yuan from 4.6318 yuan and slipped to 74.33 yen from 74.50 yen. The trade-weighted index fell to 75 from 75.19.

New Zealand's two-year swap rate fell 3 basis points to 2.24 percent, and 10-year swaps fell 6 basis points to 2.73 percent.

BusinessDesk.co.nz

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