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NZ dollar falls vs yen; investors seek haven in heightened volatility

Friday 19th October 2018

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The New Zealand dollar fell against a stronger yen as weaker equity markets and expectations of further US interest rate rises pushed investors toward 'safe haven' assets.

The kiwi declined to 73.43 yen as at 8am in Wellington from 73.71 yen yesterday. It was little changed at 65.46 US cents form 65.51 cents. 

The Dow Jones Industrial Average fell 1.4 percent in late trading as expectations for higher US interest rates were reaffirmed by minutes to the Federal Reserve's last policy review.

Volatility in financial markets is at an elevated level as investors balance the tensions between a spendthrift White House administration and tightening monetary policy. The VIX, known as Wall Street's fear gauge, was at 20.64, compared with its five-year moving average of 13.23. 

Among those tensions is the trade war brewing between the US and China. The US Treasury published its semi-annual currency report yesterday, which highlighted concerns about the weakness in China's currency. It noted a lack of transparency about the drivers of that weakness but didn't go as far as naming China a currency manipulator. The People's Bank of China has been depreciating the yuan through a lower reference rate this year, but has said it won't use the rate as a trade war tool. 

Bank of New Zealand senior markets strategist Jason Wong said Wall Street's weakness overnight had been put down to fears over global growth and the Fed's hawkish messaging. 

"Against that backdrop JPY is outperforming while the NZD continues to remain uncorrelated with risk appetite, as we’ve seen during the recent equity market sell-off," he said in a note. 

Local data today include September travel and migration figures. However, traders will focus more closely on Chinese GDP and monthly indicators. The kiwi traded at 4.5408 Chinese yuan from 4.5428 yuan yesterday. 

The local currency increased to 50.23 British pence from 50.02 pence yesterday after a European Union summit didn't reach an agreement on Brexit terms. The kiwi traded at 57.08 euro cents from 56.97 cents yesterday. 

The New Zealand dollar increased to 92.09 Australian cents from 91.85 cents yesterday. The trade-weighted index was at 71.73 from 71.67. 


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