NZ dollar bounces from five-year low as deteriorating economy, Greece stoke volatility

Wednesday 1st July 2015

The New Zealand dollar rose from a five-year low after Greece missed its debt repayment deadline, while a deteriorating local economic outlook stokes expectations for steeper interest rate cuts.

The kiwi rose to 67.94 US cents at 5pm in Wellington from 67.73 cents at 8am, and little changed from 68.06 cents yesterday. The trade-weighted index fell to 71 from 71.19.

Greece fell into arrears after missing a 1.6 billion euro repayment to the International Monetary Fund, and can only receive funding once that debt is cleared. The IMF said it received a request for an extension to the obligation today, which will go to the funding agency's board in due course. Greece's debt ructions, which may see the Mediterranean nation turfed out of the euro-zone, have been stoking volatility in finance markets, and will continue to dominate headlines in the lead-up to a public referendum on Sunday as to whether Greece should agree to the bail-out conditions that would accompany a rescue package.

The Greek debt situation has been compounded by recent economic data showing a slowdown in New Zealand, with business confidence tumbling into negative territory for the first time since the February 2011 Canterbury earthquake. The combination of the global and local situation has put the Reserve Bank on edge, and governor Graeme Wheeler has already embarked on an easing cycle. Yesterday's weak data stoked expectations Wheeler will cut the official cash rate to as low as 2.5 percent by the end of the year.

"Markets are going to be whippy and a bit patchy, where things will be headline-driven by Greek and European officials," said Michael Johnston, senior trader at HiFX in Auckland. "Any rallies (in the kiwi) aren't going to last too long or go too far."

Traders are waiting for the GlobalDairyTrade auction on Wednesday in the US for another gauge on the strength of New Zealand's biggest export commodity. The futures market is pricing in a fall in whole milk powder, the biggest product sold by volume.

HiFX's Johnston said another decline would result in further pressure on the kiwi dollar.

The local currency was little changed at 60.98 euro cents at 5pm in Wellington from 60.79 cents yesterday, and was unchanged at 43.26 British pence. It dropped to 87.99 Australian cents from 88.64 cents yesterday, and declined to 4.2129 Chinese yuan from 4.2212 yuan. The local currency was almost unchanged at 83.21 yen from 83.22 yen.

New Zealand's two-year swap rate increased to 3.09 percent from 3.08 percent yesterday, and the 10-year swap rate advanced to 3.93 percent from3.89 percent.

BusinessDesk.co.nz

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