NZ dollar gains as Beijing tries to support stocks, Wheeler speech awaited

Tuesday 28th July 2015

The New Zealand dollar rose after Beijing said it was continuing efforts to support the ailing Chinese stock market, slowing their decline, while locally traders await a speech by the Reserve Bank governor tomorrow.

The kiwi dollar advanced to 66.61 US cents as at 5pm in Wellington, from 65.88 cents yesterday. The trade-weighted index gained to 70.90 from 70.22.

China's Shanghai Composite index was down about 1 percent in early afternoon trading, having slumped 8.5 percent yesterday. Chinese regulators said after the close of trading yesterday that China Securities Finance Corp, set up by Beijing to provide margin financing and liquidity, would remain in the market and the government would do what it could to avert "systemic risks". Both the kiwi and the Australian dollar have weakened on concern demand for commodities is waning in the biggest market for iron ore and dairy products.

"We've had a bit of a bounce on suggestions the government has ordered everyone in the market-making space to start buying large-cap Chinese stocks," said Nick Tvedt, senior corporate FX dealer at NZ Forex. Still, "we view this move as largely corrective. It has to remain a sell-the-rally story. It is hard not to think the Chinese stock market has a little further to go on the downside".

Tvedt said the kiwi may rise as high as 67 US cents before running into sellers.

The New Zealand dollar rose to 4.1371 Chinese yuan from 4.0952 yuan late yesterday. The kiwi gained to 90.98 Australian cents from 90.36 cents yesterday on speculation Australia's exposure to China's demand for hard commodities such as iron ore and coking coal will weigh more heavily on its currency.

Traders are awaiting Reserve Bank governor Graeme Wheeler's speech on the outlook for New Zealand's economy tomorrow, where he's expected to provide more guidance to the market after the currency gained following last week's rate cut. The market is pricing in 42 basis points of interest rate cuts to the 3 percent official cash rate over the coming 12 months, according to the Overnight Index Swap curve.

Two-year swaps rose about 1 basis point to 2.92 percent and five-year swaps were unchanged at 2.17 percent.

The kiwi advanced to 82.33 yen from 81.34 yen yesterday, and gained to 60.13 euro cents from 59.85 cents. The currency increased to 42.77 British pence, from 42.42 pence.

BusinessDesk.co.nz

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