NZ dollar falls as risk sentiment falters as geopolitical concerns in focus

Wednesday 18th May 2016

The New Zealand dollar fell as global geopolitical uncertainties and stretched equity market valuations sapped risk appetite and demand for the currency of a country where interest rates are set to fall in coming months.

The kiwi fell to 67.92 US cents as at 5pm in Wellington, from 68.07 cents late yesterday. The trade-weighted index rose to 72.81 from 72.67.

The currency was buffeted by conflicting forces overnight, with a jump in US consumer prices adding to the case for a Federal Reserve rate hike, while the increase in the price of dairy products in the GlobalDairyTrade auction was positive for the kiwi. Fonterra Cooperative Group is expected to give its first milk payout forecast for the 2016/2017 season after its board meeting next week, with some increase seen from this season's weak payout, while the Reserve Bank is expected to cut the official cash rate in August, if not at its June meeting.

"At the moment, the kiwi is a bit non-directional. We're seeing risk sentiment faltering a little bit and the kiwi tends to be sentiment driven," said Sheldon Slabbert, a trader at CMC Markets New Zealand. "You've got the Brexit, US elections, recession in Japan, the migrant crisis and renewed Chinese credit fears - there's a lot of uncertainty in the market." Brexit is the term that's been adopted to describe the British referendum on membership of the European Union, which takes place on June 23.

Slabbert said in addition to global issues "equity valuations on any metrics are getting stretched. All these factors are turning it into not necessarily the greatest investment environment going forward," he said.

The kiwi didn't move much after government figures showed both producer input and output prices fell in the first quarter, underlining the picture of a domestic economy with little inflation pressure.

The New Zealand dollar gained to 93.14 Australian cents from 92.50 cents and was little changed at 47.03 British pence from 47.01 pence. It was also little changed at 60.16 euro cents from 60.14 cents. The kiwi was little changed at 74.13 yen and was little changed at 4.4366 yuan from 4.4361 yuan yesterday.

The two-year swap rate fell 1 basis point to 2.20 percent and the 10-year swaps fell 2 points to 2.84 percent.

BusinessDesk.co.nz

Comments from our readers

No comments yet