NZ dollar follows oil prices, equity markets lower as risk appetite wanes

Tuesday 26th January 2016

The New Zealand dollar followed oil prices and Asian stock markets lower as investors remained nervous about their exposure to risk-sensitive assets, in a market thinned out by an Australian holiday.

The kiwi slipped to 64.57 US cents at 5pm in Wellington from 64.80 cents at 8am, and 65.15 cents yesterday. The trade-weighted index declined to 71.28 from 71.76 yesterday.

Commodity-linked currencies including the kiwi, Australian and Canadian dollars remained weak through the Asian trading session as oil prices dropped on the prospect of a continuing global glut. That spurred investors to scale back their riskier assets classes, and stocks across Asia fell, with China's Shanghai Composite down 2.1 percent in afternoon trading, and Japan's Nikkei 225 index falling 1.8 percent. Australian markets were closed for the Australia Day holiday.

"The markets are still deeply confused about some of the price action we're seeing - oil was down 7.5 percent in the US then 1.7 percent in the Asian session," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "That added to the earlier weakness in the kiwi, though since then we've come off those lows."

Bank of New Zealand economists raised their forecast for economic growth this year after the BusinessNZ-BNZ performance of services index continued to show robust expansion in the services sector, while dairy processor Westland Milk cut its forecast payout to farmers for the current season as strong US and European supply keep a lid on global prices.

That comes ahead of the Reserve Bank's policy review on Thursday, which economists expect will remain on hold, but acknowledge the weak rate of inflation New Zealand's currently experiencing.

New Zealand's two-year swap rates dipped two basis points to 2.63 percent at 5pm in Wellington, while 10-year swaps were unchanged at 3.45 percent.

The kiwi was little changed at 92.81 Australian cents from 92.83 cents yesterday ahead of inflation data across the Tasman tomorrow.

The local currency fell to 4.2469 Chinese yuan from 4.2856 yuan yesterday, and dropped to 76.29 yen from 77.33 yen. It declined to 59.53 euro cents from 60.24 cents yesterday, and was little changed at 45.37 British pence from 45.42 pence.

BusinessDesk.co.nz

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