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NZ dollar edges lower as Chinese stock market settles down

Monday 11th January 2016

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The New Zealand dollar edged lower as Chinese stocks fell at a more sedate pace after the removal of the circuit-breaker trading restrictions, and investors refrained from panic-selling. 

The kiwi slipped to 65.29 US cents at 5pm in Wellington from 65.46 cents at 8am, and 65.38 cents on Friday in New York. The trade-weighted index fell to 71.95 from 73.05 last week.

The local currency dropped 4.4 percent in the first week of 2016 after the suspension of trading on China's stock markets twice in four days spooked investors worldwide, and sapped their appetite for risk-sensitive assets such as the kiwi. Chinese authorities have since removed their circuit-breakers, which would suspend trading if the market fell 7 percent, while retaining a restriction on major shareholders selling shares. The Shanghai Composite Index fell 2.4 percent in afternoon trading.

"China's stock market still needs to come down, but you want to do it more gradually," said Michael Johnston, senior dealer at HiFX in Auckland. "We would have seen the sell-off in the kiwi happen eventually even without the impetus from China, but that accelerated it."

HiFX's Johnston said traders will continue to watch China's stock markets to gauge investors' sentiment this week. The kiwi fell to 4.2966 Chinese yuan at 5pm in Wellington from 4.3108 yuan last week. 

Stronger US employment data on Friday helped push down the kiwi against the greenback, which is being supported on the prospect of the Federal Reserve continuing to raise interest rates this year. 

A BusinessDesk survey of eight currency analysts predicts the kiwi will trade between 64 US cents and 67 cents this week. Six expect the local currency to fall, one says it may rise and one forecasts it will stay little changed.

Local government data today showed New Zealand residential building consents rose in November, underpinned by a pick-up in demand for retirement village units.

New Zealand's two-year swap rate decreased two basis points to 2.73 percent, and 10-year swaps fell three basis points to 3.53 percent. 

The kiwi declined to 93.61 Australian cents from 94 cents on Friday in New York, and fell to 76.59 yen from 76.78 yen. It was unchanged at 59.80 euro cents from the New York close, and was little changed at 44.94 British pence from 45.02 pence.

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