NZ dollar extends decline as rising US bond yields boost greenback

Friday 5th October 2018

The New Zealand dollar extended its decline for a fourth day as US bond yields continued to rise on expectations a strong US economy will drive up interest rates.

The kiwi fell as low as 64.75 US cents, the lowest since February 2016, and traded at 64.78 cents at 8am in Wellington from 64.97 cents yesterday. The trade-weighted index dropped to 70.92 from 71.11.

The yield on US 10-year Treasuries rose 3 basis points to 3.19 percent as stronger than expected US data this week heightened expectations the Federal Reserve will hike interest rates more aggressively than signalled. Non-farm payrolls tonight will likely show the US added 181,000 jobs last month. The yield on US 10-year Treasuries is 55 basis points higher than New Zealand's equivalent government bond, with the spread widening from 42 basis points at the end of last week.

Meanwhile, stocks on Wall Street fell after US Vice President Mike Pence accused China of a campaign to undermine the White House, damping expectations for a resolution to the trade dispute between the world's two biggest economies.

"The NZD has broken through support levels as the stronger USD and risk-off price action dominates. It looks to be barely hanging on here," ANZ Bank New Zealand economists Miles Workman and Philip Borkin said in a note.

No local data is scheduled today. Australian retail sales will be watched.

The kiwi dropped to 49.72 British pence from 50.20 pence yesterday on reports UK Prime Minister Theresa May's Brexit plan has support from Ireland. The porosity of the Northern Ireland border has been a sticking point in the negotiations. The local currency declined to 56.24 euro cents from 56.58 cents.

New Zealand's dollar traded at 91.53 Australian cents from 91.59 cents yesterday and fell to 4.4477 Chinese yuan from 4.4601 yuan. It dropped to 73.73 yen from 74.18 yen.

(BusinessDesk)

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