NZ dollar drops to 17-month low vs. British pound after BOE pulls back on lending scheme

Friday 29th November 2013

The New Zealand dollar fell to the lowest in more than 17 months against the British pound after the Bank of England bet the UK housing market was strong enough to withdraw support for a lending scheme.

The kiwi dropped as low as 49.53 British pence in local trading early this morning, the lowest level since June last year. The local currency was trading at 49.74 pence at 8am in Wellington, from 50.07 pence at the 5pm market close yesterday. The New Zealand dollar slipped to 81.29 US cents from 81.65 cents at yesterday.

The British pound strengthened after the Bank of England unexpectedly said it would end mortgage incentives for banks under its Funding for Lending Scheme from Jan. 1. The bank is ending the scheme, which allows banks to borrow from the BOE at discounted interest rates for mortgage lending purposes, to slow rising UK house prices and prevent the emergence of future imbalances.

"The BOE wants to lean against the strong rise in UK house prices," David Croy, head of markets research at ANZ New Zealand, said in a note. "It is a tightening in monetary conditions and may be viewed by some as the precursor to a rise in interest rates. The move has pushed the GBP even higher, making a fresh high for the year."

Trading was quieter than normal because of the US Thanksgiving holiday.

In New Zealand today, traders will be eyeing building consent figures for October at 10:45am which are expected to show a third month of gains.

New Zealand money supply data for October will be published by the Reserve Bank of New Zealand at 3pm.

The New Zealand dollar weakened to 89.19 Australian cents from 89.43 cents yesterday after an Australian report yesterday showed stronger-than-expected private capital expenditure intentions.

The local currency slipped to 83.09 yen from 83.32 yen yesterday. The kiwi edged lower to 59.76 euro cents from 60.12 cents yesterday as German inflation data beat forecasts and European confidence improved. The trade-weighted index slipped to 76.39 from 76.73 yesterday.

BusinessDesk.co.nz

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