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NZ dollar may edge higher as Chinese capital controls keep investors wary

Friday 6th January 2017

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The New Zealand may extend recent gains as Chinese efforts to prevent capital leaving the country saw a sharp appreciation in the yuan at the greenback's expense, keeping investors wary of more action sanctioned by Beijing.

The kiwi traded at 70.14 US cents at 5pm in Wellington from 70.24 cents at 8am, up from 69.89 cents yesterday. The trade-weighted index was little changed at 77.61 from 77.59 yesterday. 

The People's Bank of China fixed the yuan at 6.8668 per US dollar, 0.9 percent stronger than yesterday, in the biggest daily fix since 2005. Chinese authorities attempted to slow the flow of capital out of China this week by selling large quantities of US dollars. While that action was more subdued in Friday trading, it's helped devalue the greenback after a rapid climb in recent months on the expectation of rising interest rates in the US. 

"With the PBOC quite clearly intervening and getting the SOEs (state-owned enterprises) to sell US dollars, I don't think we're at the end," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "We've still got some volatility to come, and the kiwi could probably continue to edge up to 70.50/71 US cents." 

Investors will be watching US non-farm payroll employment statistics, which are expected to show the US added 175,000 jobs last month. Minutes to the US Federal Reserve's December policy review raised uncertainties about how aggressively the central bank will raise interest rates this year, depending on how stimulatory president-elect Donald Trump's spending programme and tax reforms are. 

The yield on 10-year US treasuries has dropped 9 basis points over the past two days to 2.36 percent, and Kelleher said that uncertainty could see some investors scale back their appetite for risky assets and book in profits ahead of Trump's inauguration on Jan. 20. 

New Zealand's two-year swap rate rose 2 basis points to 2.36 percent and 10-year swaps slipped 1 basis point to 3.37 percent. 

The local currency edged lower to 95.62 Australian cents from 96.81 cents yesterday and declined to 81.20 yen from 81.38 yen. It slipped to 56.59 British pence from 56.70 pence yesterday and decreased to 66.24 euro cents from 66.42 cents. The kiwi rose to 4.8453 yuan from 4.8406 yuan yesterday.

 

BusinessDesk.co.nz

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