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NZ dollar holds near 2 1/2 year low as investors fret over emerging markets

Thursday 16th August 2018

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The New Zealand dollar held near a two-and-a-half year low as global investors remained nervous about risk-sensitive assets after Turkey's recent woes put the spotlight back on emerging markets. 

The kiwi traded at 65.63 US cents as at 8am in Wellington from 65.57 cents yesterday. The trade-weighted index was at 71.62 from 71.58. 

Currencies and equities in emerging markets fell after Turkey's financial woes raised questions about those countries' ability to keep supporting economic growth. Indonesia's central bank raised the seven-day reverse repurchase rate a quarter-point to 5.5 percent yesterday to protect the rupiah, which has been trading at its weakest levels in three years and was recently at 14,595 per US dollar. 

That weighed more broadly on other risk-sensitive asset classes, with Wall Street weaker and commodity prices down. Turkey's lira appreciated 7.6 percent to 5.8714 per US dollar after the country secured a US$15 billion investment from Qatar, amid heightening trade tensions with the US and rising interest costs on US-denominated debt. 

"In a sign that emerging market central banks are starting to pivot to tighter policy to stem currency weakness, Indonesia’s central bank unexpectedly raised rates yesterday – this is what tends to happen when the Fed is tightening policy, but it’s clearly another negative for EM domestic growth," Bank of New Zealand interest rate strategist Nick Smyth said in a note. "The NZD has traded a very narrow range overnight and is not far from where it was trading this time yesterday." 

Local data today include Reserve Bank figures on foreign holdings of government debt while aross the Tasman the Bureau of Statistics will report the latest Australia labour data. 

The kiwi fell to 90.67 Australian cents from 90.91 cents yesterday and firmed to 4.5501 Chinese yuan from 4.5266 yuan. It increased to 72.63 yen from 72.45 yen yesterday and traded at 56.84 euro cents from 57.90 cents yesterday. The local currency was little changed at 51.68 British pence from 51.61 pence yesterday. 


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