NZ dollar weakens after China policy easing

Tuesday 27th October 2015

The New Zealand dollar weakened after China on Friday cut interest rates for a sixth time in the past year, stoking concern about the growth outlook in the country's largest trading partner.

The kiwi declined to 67.84 US cents at 8am in Wellington, from 68.39 cents at 5pm on Friday. It was little changed from 67.81 US cents at 5pm yesterday, when local markets were closed for the Labour Day public holiday. The trade-weighted index was at 73.04 from 73.51 on Friday.

On Friday, China, Asia's largest economy and the largest importer of New Zealand commodities including milk powder, logs and wool, cut interest rates and lowered the amount of cash that banks must hold as reserves in an attempt to stimulate the economy which looks set to grow this year at its slowest pace in 25 years. That prompted investors to sell currencies such as the kiwi which are linked to growth in China.

"New Zealand returns from the long weekend to news that China cut interest rates on Friday night, and… not a lot else," said Bank of New Zealand currency strategist Raiko Shareef. "Initially, the New Zealand dollar rose because easy global monetary policy tends to benefit high-yielding carry-trade currencies. But the drop to below 0.6750 afterwards came as investors began to wonder whether the rate cuts signalled greater concern by the Chinese authorities about a slowing economy."

This week, local traders will be focused on Thursday's interest rate decisions by the Federal Reserve and the Reserve Bank of New Zealand, with most economists expecting no change to policy. Investors are split on whether the Japanese central bank will ease policy further on Friday.

Today, New Zealand trade data for September is scheduled for release at 10:45am.

The New Zealand dollar slipped to 93.52 Australian cents from 94.38 cents on Friday, dropped to 44.19 British pence from 44.38 pence, weakened to 61.40 euro cents from 61.52 cents, fell to 82.11 yen from 82.52 yen and declined to 4.3090 yuan from 4.3471 yuan.

BusinessDesk.co.nz

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