NZ dollar heads for 1.6% weekly fall as commodity prices sag, investors stay gloomy

Friday 15th January 2016

The New Zealand dollar is heading for a 1.6 percent weekly decline against the greenback this week as sagging commodity prices and the prospect of a slowing Chinese economy keep investors relatively gloomy about this year's outlook.

The kiwi fell to 64.32 US cents at 5pm in Wellington from 65.38 cents on Friday in New York last week, and has dropped 5.8 percent this year. It traded at 64.74 cents at 8am and 64.84 cents yesterday. The trade-weighted index is heading for a 2.8 percent weekly decline to 71.07, and was down from 71.64 yesterday. The TWI has dropped 4.3 percent so far this year.

A BusinessDesk survey of eight currency analysts predicted the kiwi would trade between 64 US cents and 67 cents this week. Six expected the local currency to fall, one said it would rise and one predicted it would be little changed.

Brent Crude oil prices fell below US$30 a barrel this week, the first time in 12 years, as investors fretted about the the global oversupply. At the same time, Chinese stocks fell below last year's low, sapping investors' appetite for risk-sensitive assets such as the kiwi dollar.

"This environment is not going to go away any time soon - the commodity price story seems like it will lurk around for some time as there's a lot of supply in commodity markets, and risk remains in off-mode with weak equity markets," said Jason Wong, currency strategist at Bank of New Zealand in Wellington. "After the kiwi's big move last week, it was always going to settle down a little bit."

BNZ's Wong said next week's December quarter consumers price index will add some event risk for the kiwi, but he still anticipates the local currency will depreciate this year.

Government data today showed food prices fell 0.8 percent in December, more than expected, prompting ASB economists to downgrade their CPI expectations for next week.

The recent drop in global oil prices may also push inflation expectations lower, prompting central banks to cut their interest rates. New Zealand's Reserve Bank reviews the 2.5 percent official cash rate on Jan. 28.

New Zealand's two-year swap rate decreased one basis point to 2.7 percent at 5pm in Wellington, and 10-year swaps slipped two basis points to 3.49 percent.

The local currency dropped to 92.56 Australian cents from 93.43 cents yesterday, and fell to 4.2366 Chinese yuan from 4.2726 yuan. It sank to 59.09 euro cents from 59.57 cents yesterday, and declined to 44.64 British pence from 45.02 pence. The kiwi decreased to 75.81 yen from 76.16 yen yesterday.

BusinessDesk.co.nz

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