NZ dollar tumbles to lowest in 2010 after CPI falls, Chinese lending tightened

Thursday 21st January 2010

The New Zealand dollar tumbled to its lowest level this year after a fall in consumer price index caused investors to pare back their expectations for an early rate hike by the central bank, while Chinese authorities reined in lending for the rest of the month to limit credit growth.

Inflation shrank 0.2% in the three months through December according to government data, in line with Reserve Bank forecasts and giving Governor Alan Bollard room to hold off on hiking the official cash rate until the “middle of 2010” as he’s previously indicated. Liu Mingkang, chairman of the China Banking Regulatory Commission, was reported to have asked certain banks to limit their lending in a bid to control the country’s credit growth. The kiwi slumped 2.6% to its lowest point since Dec. 29 after investors’ appetite for higher-yielding, or riskier, assets continued to decline during the New York and London trading sessions.

“Risk appetite was hit reasonably hard by that (the Chinese bank lending) announcement, which slowed demand for commodities,” said Mike Jones, strategist at Bank of New Zealand. “The currency got kicked while it was down with equity markets everywhere deeply in the red, which further weighed on risk appetite.”

The kiwi sank to 71.98 U.S. cents from 72.67 cents yesterday, and tumbled to 66.75 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 66.10. It dropped to 65.67 yen from 66.08 yen yesterday, and declined to 79.18 Australian cents from 79.34 cents. It decreased to 51.05 euro cents from 51.17 cents yesterday, and fell to 44.21 pence from 44.62 pence.

Jones said the currency may trade between 71.40 U.S. cents and 72.90 cents, and was currently “undervalued” with BNZ economists putting fair value on the kiwi at 73 to 74 cents.

“The kiwi was the weakest performer overnight” and will probably take its cues from a slew of data out today, Jones said.

The main data release today will be Chinese gross domestic product, CPI, and retail sales, out this afternoon, which will likely show the world’s third largest economy is still growing.

In New Zealand, the BNZ-Business New Zealand Performance of Manufacturing Index, November retail sales and the ANZ Roy Morgan Consumer Confidence index are expected to continue to paint a benign picture of the local economy.

Businesswire.co.nz

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