NZ dollar extends slide as Fed reticence stokes concern for US, global growth

Monday 21st September 2015

The New Zealand dollar extended its decline from a three-week high on concern the Federal Reserve's unwillingness to raise interest rates last week suggests both the US and the global economy are weaker than expected.

The kiwi fell to 63.57 US cents as at 5pm in Wellington from 63.93 cents in late New York trading on Friday. The kiwi reached as high as 64.55 cents in New York, a three-week high. The trade-weighted index fell to 68.61 from 69.03.

Equity markets fell across Asia today, following declines on Wall Street on Friday after the Fed delivered a more dovish message than expected and kept interest rates near zero. The Fed pointed to global growth concerns, seen as a reference to a slowing Chinese economy, but chair Janet Yellen also emphasised that inflation and some broad measures of employment in the US weren't quite as strong as was needed to hike rates last week.

"The fact that the Fed wasn't able to raise rates is quite negative for the global economy," said Angus Nicholson, market analyst at IG Markets in Melbourne. "The US economy hasn't been doing as well as had been hoped. The base case scenario (for a Fed hike) has now moved to December and there's a lot of commentary that they may have to wait for 2016."

With the Fed unmoved, focus had returned to specific factors driving the kiwi and Australian dollars. Australian second-quarter gross domestic product rose just 0.2 percent in the second quarter, half the pace expected, while property auction clearance rates were the slowest in three years, suggesting the housing market may have peaked. In New Zealand, second-quarter GDP rose a smaller-than-expected 0.4 percent and the Reserve Bank has flagged it may make another quarter-point cut to the official cash rate after lowering the rate to 2.75 percent on Sept. 10.

"For the Aussie and the kiwi, more significant declines are likely to be in the offing as an easing bias and problems in the domestic economies start to weigh on those currencies," Nicholson said.

The local currency fell to 88.60 Australian cents from 88.93 cents on Friday and slipped to 4.0439 Chinese yuan from 4.0703 yuan.

The kiwi declined to 76.14 yen from 76.77 yen on Friday, and fell to 56.15 euro cents from 56.68 cents. It dropped to 40.89 British pence from 41.20 pence on Friday.

The two-year swap rate was unchanged at 2.68 percent, five-year swaps rose 2 basis points to 3.04 percent and 10-year swaps rose 3 basis points to 3.56 percent.

BusinessDesk.co.nz

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