NZ dollar falls on concerns over Chinese, Australian economies

Monday 2nd March 2015

The New Zealand dollar fell after a rate cut by the People's Bank of China and weaker than expected Australian manufacturing figures raised concerns about the economies of New Zealand's two biggest trading partners.

The kiwi declined to 75.23 US cents at 5pm in Wellington from 75.65 cents at 8am and 75.60 cents on Friday in New York. The trade-weighted index decreased to 78.37 from 78.59 last week.

China's central bank cut its key lending and deposit rates over the weekend in its latest bid to spur slowing economic growth. Last month the PBOC cut the reserve requirement rate in a bid to reduce funding costs for companies. Separately, the Australian Industry Group's performance of manufacturing index showed the sector shrank for a third month in February, in the latest sign Australia's economy is struggling. New Zealand relies heavily on the two nations which account for about 36 percent of the nation's exports.

"Cutting your deposits rate and your lending rate is not something you do when you're economy is functioning well, then we had a few bits of weaker Aussie data," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "That's been the key drive for both Aussie and New Zealand today."

Australia's Reserve Bank reviews its 2.25 percent cash rate tomorrow, and traders have priced in a 53 percent chance of a cut, according to the Overnight Index Swap curve. The kiwi edged up to 96.83 Australian cents at 5pm in Wellington from 96.75 cents last week, and fell to 4.7184 Chinese yuan from 4.7397 yuan.

New Zealand government data showed the country's terms of trade fell 1.9 percent in the fourth quarter of 2014, smaller than the 3 percent decline expected by economists.

ANZ's Tuck said US manufacturing figures during New York trading might come in weaker than expected, following earlier surveys, and that could provide a floor for the kiwi dollar.

A BusinessDesk survey of 12 currency traders and strategists predicts the kiwi may trade between 74.20 US cents and 77.60 cents this week. Five expect the currency to gain, while five say it may decline and two bet it will remain relatively unchanged.

The local currency fell to 67.29 euro cents from 67.51 cents on Friday in New York, and decreased to 48.84 British pence from 48.97 pence. It slipped to 90.16 yen from 90.35 last week.

The two-year swap rate decreased to 3.54 at 5pm in Wellington from 3.55 last week, while the 10-year swap rate declined to 3.72 from 3.725.

BusinessDesk.co.nz

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