NZ dollar 'very much out of favour' as investors sell higher risk assets

Wednesday 25th September 2013

The New Zealand dollar weakened as investors sold off higher risk assets as they mull yet again the prospect of the US Federal Reserve pulling back its US$85 billion a month bond buying programme.

The kiwi fell to 82.70 US cents at 8am in Wellington from 83.35 cents at the 5pm market close yesterday. The trade-weighted index slid to 77.10 from 77.63.

The New Zealand dollar was the biggest decliner overnight as investors continue to consider the outlook for tapering after the Fed last week unexpectedly chose not to change its money printing programme. Investors are considering whether the Fed may start pulling back the programme at its meeting next month, after Fed officials this week suggested the decision not to go this month was a close call.

"The kiwi got sold off against everything overnight so it is very much out of favour," said Stuart Ive, senior client advisor, foreign exchange and derivatives, at OM Financial. "The broader sell off started yesterday and continued overnight, gaining momentum even, coming from what appears to be a risk off scenario with a lot of people unwinding some of their positions in the currency and taking profits."

Central banks globally are concerned that removing monetary stimulus early may push up interest rates too fast and stymie a recovery, Ive said.

The kiwi will probably consolidate around these levels, and trade between 82.10 US cents and 83 cents today, Ive said.

A report on New Zealand's trade balance at 10.45am today is unlikely to move the currency, he said. The report is expected to show a trade deficit of $743 million in August, from a gap of $774 million the previous month, according to a Reuters poll.

The New Zealand dollar slipped to 88.04 Australian cents at 8am in Wellington, from 88.51 cents at the 5pm market close yesterday ahead of the Reserve Bank of Australia's release of its September Financial Stability Review today.

The kiwi fell to 81.65 yen from 82.37 yen yesterday and dropped to 61.36 euro cents from 61.76 cents and declined to 51.67 British pence from 52 pence.

BusinessDesk.co.nz

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