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NZ dollar heads for 11% slump in Sept quarter

Tuesday 30th September 2014

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The New Zealand dollar is heading for an 11 percent slump in the September quarter as global demand for the greenback has rallied on the prospect of rising US interest rates next year, and as the Reserve Bank of New Zealand confirmed it had been active in the currency market, having jawboned the kiwi since July.

The local currency fell to 78 US at 5pm in Wellington from 87.56 cents at the close of trading on June 30, although it had traded lower, reaching 77.69 cents at 8am and 77.45 cents yesterday. The trade-weighted index rose to 76.02 from 75.61 yesterday, and is heading for a 6.3 percent quarterly decline.

The kiwi has been under pressure in recent weeks as global investors rally behind the greenback on growing anticipation the Federal Reserve will start moving on interest rates as the world's biggest economy recovers. Falling commodity prices for dairy and logs, two of New Zealand's biggest exports, have also put pressure on the kiwi, along with heightened rhetoric from Reserve Bank governor Graeme Wheeler in calling the currency unsustainably and unjustifiably high. Central bank figures yesterday confirmed market speculation the bank had intervened in foreign exchange markets in August, with net sales totalling $521 million in the month.

"Since the beginning of July, most currencies have weakened against the US dollar. We've weakened the most, but the Aussie's down 7 percent and some emerging market currencies have done similar," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "The US dollar accounts for about seven of the 10 percentage points (in the local currency's decline). The rest is probably kiwi factors."

Speizer said the kiwi dollar has support at 77 US cents, and may push up to 79.20 cents over the next 24 hours with gains in the greenback slowing as the quarterly and monthly ends approach. Large financial institutions typically reassess their portfolio weightings at the end of each period.

The greenback will continue to grind higher as US economic data supports an improving economy, though there might be brief corrections on the way, Speizer said. US employment figures on Friday will be the major focus for the market this week.

Traders will also keep watch on the latest dairy auction on Fonterra Cooperative Group's GlobalDairyTrade platform on Tuesday in the US. Prices appeared to find a base at the last auction two weeks ago, with the average winning price rising from a two-year low.

Government figures today showed issuance of new building permits was flat in August, slightly ahead of expectations for a small decline, while the ANZ Business Outlook showed business confidence at a two-year low in September.

The local currency increased to 89.12 Australian cents at 5pm in Wellington from 88.97 cents yesterday, and advanced to 85.23 yen from 84.71 yen. It gained to 61.45 euro cents from 61.08 cents yesterday, and rose to 47.98 British pence from 47.72 pence.


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