NZ dollar falls to three-month low vs. yen as investors spooked by China

Friday 8th January 2016

The New Zealand dollar fell to its lowest level against the yen in more than three months as investors favoured the safe haven Japanese currency amid concerns about a slowing Chinese economy and weak commodity prices.

The kiwi touched 77.44 yen, its lowest level since Oct. 5 last year, and was trading at 77.89 yen at 8am in Wellington, from 78.45 yen at 5pm yesterday. The local currency edged lower to 66.22 US cents from 66.37 cents yesterday.

Investors have been piling into safe-haven assets such as the yen this year as concerns mount about the extent of a slowdown in China after weaker-than-expected data on the manufacturing and services industries, a slump in the country's stock market and devaluation of the yuan. China's central bank yesterday lowered the official yuan midpoint rate, marking the biggest daily decline since last August. Meanwhile Chinese share trading was yesterday halted for the second time this week after equities plummeted by more than 7 percent in the first 29 minutes, prompting officials to suspend a so-called circuit breaker, implemented only earlier this week to avoid panic selling.

Oil prices rebounded from plunges earlier in the day, when Brent crude sank more than 6 percent to an almost 12-year low of US$32.16.

"Yen is the safe haven currency. All the yen crosses have weakened," said Mark Johnson, OMF senior dealer, foreign exchange. "The two main drivers are China and oil. The China growth story is the elephant in the room."

OMF's Johnson said there was support for the kiwi at about 75 yen, meaning there was potential for the cross to fall further.

"It's like trying to catch a falling knife," he said.

The lack of local data following the Christmas and New Year holiday period meant the kiwi was being driven by offshore events, he said.

Today, Australian monthly retail sales data is scheduled for release. Tonight, the focus will be on the key US nonfarm payrolls report which is expected to show the world's largest economy added about 200,000 jobs in December, following the 211,000 jobs added in November.

"If we get a strong print there, it might give us a bit more dollar strength," Johnson said.

The New Zealand dollar advanced to 94.55 Australian cents, from 94.16 cents yesterday, and declined to 4.3656 yuan from 4.3744 yuan. It slipped to 60.74 euro cents from 61.35 cents yesterday, and was little changed at 45.35 British pence from 45.37 pence. The trade-weighted index slipped to 72.93 from 73.01 yesterday.

BusinessDesk.co.nz

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