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NZ dollar drops as oil price slide weighs on commodity currencies

Tuesday 26th January 2016

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The New Zealand dollar fell as oil prices declined amid concerns about a global supply glut and weak economic growth, prompting investors to favour less risky assets.

The kiwi slid to 64.80 US cents at 8am in Wellington, from 65.15 cents at 5pm yesterday. The trade-weighted index declined to 71.45 from 71.76 yesterday.

Commodity-linked currencies such as the kiwi, Aussie and Canadian dollars fell after further declines in oil prices weighed on investor sentiment. Oil dropped as Iraq officials said the country had record output in December, and may lift production further this year, while Saudi Aramco, the world’s top oil exporter, said it's not easing investments in its oil and gas production capacity. Concern about weak oil prices denting global growth sent investors to the perceived safety of US Treasuries and gold and away from equities.

"The strong link between oil and currencies and equities continues, with lower oil prices overnight meaning weaker commodity currencies, a stronger yen and euro and lower equity prices," Bank of New Zealand currency strategist Jason Wong said in a note. "Safe-haven currencies head the leaderboard. CAD is the worst-performing major currency on weaker oil prices."

BNZ expects the kiwi to trade in a range between 64 US cents and 65.50 cents ahead of the Reserve Bank's interest rate decision on Thursday.

In New Zealand today, the government's accounts for the five months through November are published at 10am, while the BNZ-BusinessNZ performance of services index is released at 10:30am.

The New Zealand dollar was little changed at 92.79 Australian cents from 92.83 cents yesterday. Australian markets are closed today for the Australia Day public holiday.

The kiwi slipped to 59.76 euro cents from 60.24 cents yesterday, edged lower to 45.42 British pence from 45.53 pence, dropped to 76.71 yen from 77.33 yen, and fell to 4.2606 yuan from 4.2856 yuan.

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