NZ dollar edges up as gain in Chinese stocks allays growth fears; ECB looms

Thursday 22nd October 2015

The New Zealand dollar edged up as a gain in Chinese equity markets helped quell fears about the health of the world's second-biggest economy, ahead of the European Central Bank meeting where traders will be watching for any hint of more quantitative easing.

The kiwi rose to 67.63 US cents at 5pm in Wellington from 67.31 cents at 8am, and from 67.48 cents yesterday. The trade-weighted index advanced to 72.63 from 72.33 yesterday.

The Shanghai Composite Index was up 0.4 percent in afternoon trading, soothing fears about the Chinese economy, which is under increased scrutiny as the world's most populous nation slowly shifts to consumer-driven growth from industrial-heavy activity. That comes as investors await the ECB policy meeting, where policymakers are expected to keep the key rate unchanged, but are coming under pressure to provide more stimulus in the face of flat inflation.

"The Shanghai and Shenzhen composites came up just a little bit, and that alleviated some risk off fears," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "An up-session on the Chinese equities driving a little lift in kiwi, but nothing major really."

ANZ's Tuck said the ECB decision is the major event this week, with New Zealand likely to be a key beneficiary of extra quantitative easing as one of the world's 10th most traded currencies.

"We expect the ECB to be relatively reluctant to talk about increasing their QE at the moment," he said. "If they do something unexpected to us, and do QE, or talk pretty strongly about the potential or need to, it likely to support the kiwi against currencies like euro, and more broadly is the idea that flows more liquidity will go into the system."

The kiwi gained to 59.59 euro cents from 59.38 cents yesterday, and to 43.80 British pence from 43.68 pence.

The local currency rose to 93.52 Australian cents from 92.81 cents yesterday after a survey across the Tasman showed a deterioration in business confidence. The kiwi increased to 4.2947 Chinese yuan from 4.2788 yuan yesterday, and was little changed at 81.02 yen from 80.89 yen.

New Zealand's two year swap rate fell three basis points to 2.72 percent at 5pm in Wellington and the 10 year swap declined five basis points to 3.5 percent.

BusinessDesk.co.nz

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