NZ dollar extends decline against yen on North Korea tensions

Thursday 13th April 2017

The New Zealand dollar fell to a new five-month low against the yen as heightened tensions around North Korea sapped investors' risk appetite and stoked demand for safe-haven assets.

The kiwi dollar slipped to 75.93 Japanese yen as at 8:30 am in Wellington and earlier touched 75.64 yen, the lowest since Nov. 14, versus 76.04 yen late yesterday. The trade-weighted index was little changed at 75.80 from 75.77.

Reuters reported that foreign journalists visiting North Korea have been told to prepare for a "big and important event" on Thursday, although there were no indications it was directly linked to tensions in the region over the isolated state's nuclear weapons program. Tensions remain high, with a U.S. Navy strike group steaming toward the western Pacific in a show of force and North Korea warning of a nuclear attack on the United States at any sign of American aggression. The Chicago Board Options Exchange Volatility Index, known as Wall Street's fear gauge, reached 15.73 overnight, the highest since early November.

"US equities continued to sell off with the VIX rising (it has risen more than 20% in four days)," said Cameron Bagrie, ANZ chief economist, in a note. While a phone call between US President Donald Trump and Chinese President Xi Jinping helped temper some geopolitical risks being priced into the market, "elevated equity valuations heading into earning season amidst rising geopolitical tension means uncertainty is high."

Xi reportedly called for a peaceful resolution to the North Korean problem in a telephone conversation with Trump on Wednesday. Meanwhile, Russian President Vladimir Putin said on Wednesday trust had eroded between the US and Russia under Trump as Moscow delivered an unusually hostile reception to Secretary of State Rex Tillerson in a face-off over Syria.

The kiwi did inch higher against the US dollar and was trading at 69.56 US cents versus 69.45 US cents late yesterday. The greenback came under some pressure after Trump told the Wall Street Journal he would like to see US interest rates stay low.

However, the kiwi fell to 55.47 British pence from 55.62 late yesterday. It declined to 62.25 euro cents from 65.47 euro cents but inched higher to 4.7913 Chinese yuan from 4.7893 Chinese yuan.

It was also weaker against the Australian dollar ahead of some key data across the Tasman. it was trading at 92.52 from 92.66 ahead of the RBA's financial stability report and some jobs data.

(BusinessDesk)

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