NZ dollar extends slide, 10-year swap rate hits record low, on weak oil, falling equities

Wednesday 24th February 2016

The New Zealand dollar extended its slide and the 10-year swap rate dropped to a record low as crude oil continued falling, stock markets weakened and US Treasury yields declined.

The kiwi dropped to 66.12 US cents at 5pm in Wellington from 66.98 cents at 5pm yesterday. The trade-weighted index declined to 72.01 from 72.71 yesterday.

Brent crude fell to US$32.80 a barrel in Asia from US$33.27 yesterday and down from US$61.63 a year ago after Saudi Arabia’s oil minister Ali al-Naimi said the country won’t cut output to alleviate oversupply in global markets. A weak consumer confidence report from China today and falling equity markets across the region all conspired to weigh on commodity-sensitive currencies such as the kiwi. The two-year swap rate fell amid expectations the Reserve Bank will cut interest rates again this year, while the 10-year rate, which reached as low as 3.10 percent, was also influenced by weak global markets and lower US Treasury bond yields.

"Oil is still under the weather and it needs a reason to go up," said Imre Speizer, currency strategist at Westpac Banking Corp. "It's the leading commodity and where it goes, the others will follow, and the kiwi goes too."

Westpac expects the New Zealand dollar to fall "to the low 60s" this year. Part of the reason is that it expects the Reserve Bank to cut the official cash rate two more times to 2 percent. Speizer said the market is now putting 60 percent odds on a second cut this year.

Adding to the risk-off sentiment, the Westpac MNI China Consumer Sentiment Indicator fell 3.6 points to 111.3 in February, adding to concern China's economy may slow harder than expected.

Traders are eyeing upcoming speeches by Federal Reserve vice chair Stanley Fischer, Richmond Fed president Jeffrey Lacker and Dallas Fed president Robert Kaplan for an indication of the US interest rate outlook. The US also publishes the Markit services PMI and new home sales.

The New Zealand dollar fell to 73.99 yen from 75.08 yen as traders flocked to the perceived safe haven of Japan's currency. It fell to 4.3185 yuan from 4.3726 yuan and declined to 59.99 euro cents from 60.64 cents. It declined to 92.11 Australian cents from 92.71 cents and fell to 47.28 British pence from 47.46 pence. The two-year swap rate was at 2.41 percent.

BusinessDesk.co.nz

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