NZ dollar falls vs. yuan on concern over Chinese devaluation

Thursday 27th October 2016

The New Zealand dollar fell against the Chinese yuan on concern Beijing's devaluation of its currency is a negative signal about the Chinese economy, the country's biggest export market.

The kiwi fell as low as 4.8448 yuan after the announcement from 4.8524 yuan immediately before and was at 4.8462 at 5pm in Wellington. The kiwi traded at 71.51 US cents at 5pm in Wellington, compared to 71.49 cents at 8am and 71.56 cents yesterday.

The yuan was fixed at a six-year low of 6.7921 yuan per US dollar this afternoon. Beijing is gradually trying to weaken its currency to make its exports more competitive, without causing a large outflow of money from companies and wealthy individuals concerned about falling buying power.

Sheldon Slabbert, sales trader at CMC Markets in Auckland said "markets are taking a bit of a risk-off tone, but far more relevant domestically is the continuous devaluation of the Chinese yuan which suggests internal economic difficulties. We've got some large exposure to China, which will affect Kiwi sentiment."

It regained most of the ground lost against the Australian dollar yesterday, trading at 93.76 cents compared to a low of 92.88 cents yesterday when Australian inflation figures were stronger than markets expected. The trade-weighted index edged up to 77.07 from 76.98.

Slabbert added that markets were mainly holding their breath ahead of key figures due over the next day.

"We've got a bit of a sprint finish with economic data this week. Inflation in Europe, the US gross domestic product figure which will be a big signal as to when the Federal Reserve will next raise rates. Markets are waiting for the next catalyst, you can see that with the New Zealand stock market as well."

New Zealand's monthly trade deficit widened to a record in September, with meat exports dropping to their lowest level in more than three years, although the data had little impact on the kiwi's fortunes in the currency markets.

The kiwi fell against the British pound to 58.54 pence from 58.80 pence yesterday. It dropped slightly against the euro to 65.61 cents from 65.70 cents and was broadly unchanged against the yen at 74.68 from 74.67 yen.

New Zealand's two-year swap rate rose 2 basis points to 2.1 percent while 10-year swaps rose 5 basis points to 2.73 percent.

BusinessDesk.co.nz

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