NZ dollar bounces as global pressures continue to weigh

Tuesday 12th January 2016

The New Zealand dollar bounced from its 4.4 percent fall against the greenback so far this year, though global pressures on inflation, commodity prices, and investor sentiment are expected to stifle demand for the local currency.

The kiwi increased to 65.59 US cents at 5pm in Wellington from 65.40 cents at 8am and 65.29 cents yesterday. The trade-weighted index advanced to 72.27 from 71.94 yesterday.

The kiwi and Australian dollars halted their decline this year as the People's Bank of China again set the mid-point of the yuan's trading band relatively flat, helping quell heightened nervousness among investors. A slump in Chinese stocks last week triggered an unseasonable bout of risk-aversion among investors, which has since abated after Chinese authorities ditched rules to suspend trading if the market fell 7 percent in a session.

The Chinese equities slump stoked concerns about the strength of China's economy, and has weighed on hard commodity prices such as oil, which would have a disinflationary effect and give New Zealand's Reserve Bank scope to cut interest rates if warranted. The kiwi gained to 4.3124 Chinese yuan from 4.296 yuan yesterday.

"I'm seeing the kiwi in a bearish light for the short term and the medium term," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "We've had a day's respite really."

Falling energy prices would eventually drag down food prices, which would erode returns for New Zealand's largest exporters. The ANZ commodity price index today showed prices for locally produced raw materials fell 13 percent in 2015, though the currency's decline meant the gauge was down 1.1 percent in New Zealand dollar terms.

Speizer said he will continue to watch China for cues on the kiwi dollar until local inflation data on Jan. 20, and the Reserve Bank's first policy review on Jan. 28. After that, central bank governor Graeme Wheeler's speech in early February will provide a steer on the RBNZ's thinking.

New Zealand's two-year swap rates increased one basis point to 2.74 percent at 5pm in Wellington, and 10-year swaps gained three basis points to 3.56 percent.

The local currency increased to 93.86 Australian cents from 93.61 cents yesterday, and rose to 77.07 yen from 76.59 yen. It gained to 60.28 euro cents from 59.80 cents yesterday, and edged up to 45.10 British pence from 44.94 pence.

BusinessDesk.co.nz

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