NZ dollar jumps as China weakens the yuan

Monday 10th October 2016

The New Zealand dollar strengthened sharply against the yuan after the Chinese central bank set its midpoint for trading between its currency and the US dollar at 6.7 yuan to the dollar, the lowest level in five years.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank in Auckland said it was the "weakest currency pegging since September 2010. The kiwi was higher earlier on in response, but has since slipped back a bit."

Monday is the first day of trading in Chinese markets after a week long holiday, a period in which the offshore yuan traded at nine-month lows against the US dollar.

The kiwi was trading at 4.7786 yuan immediately prior to the announcement at 2:30pm NZ time, before peaking at 4.8043 an hour later. It's since fallen back to trade at 4.7925 at 5pm in Wellington.

The New Zealand dollar was down against its US counterpart but remained above last week's two-month lows as the Presidential debate between Hillary Clinton and Donald Trump influenced the market.

ASB's Kelleher said the market had shifted into "risk-on, with a little bit of buying in some obscure currencies like the Mexican Peso. The debate has been positive for the Canadian dollar, negative for the US dollar. It's all in the wash around and a little bit messy."

The kiwi was trading at 71.53 US cents at 5pm in Wellington, down from 71.83 cents this morning, but up from Friday's close in Wellington where it traded at 71.32 cents. The trade-weighted index was at 76.47, up from Friday's 76.32.

Against the volatile British pound, the kiwi was at 57.69 pence, up from Friday's 57.56 pence but down from this morning's 57.78 pence, with Kelleher saying the currency was now being driven by UK politics as the country prepares for negotiations to leave the European Union.

Japan is on a public holiday, although the local currency was down slightly to 73.57 yen from 73.66 on Friday. The kiwi weakened slightly against its trans-Tasman counterpart, falling to 94.18 Australian cents from 94.45 cents on Friday. It strengthened slightly against the euro, at 63.92 cents, up from 63.89 cents at the start of the weekend.

New Zealand's two-year swap rate fell one basis point to 2.04 percent, while 10-year swaps increased by one basis point to 2.59 percent.

BusinessDesk.co.nz

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