NZ dollar heads for 1.5% weekly decline as markets shy away from risk; US jobs report looms

Friday 4th September 2015

The New Zealand dollar is heading for a 1.5 percent weekly drop against the greenback as investors continue to spurn risk-sensitive assets against the backdrop of weak Chinese stock markets, and ahead of US employment figures that keep alive a rate hike by the Federal Reserve this year.

The kiwi fell to 63.59 US cents at 5pm in Wellington form 64.53 cents on Friday in New York last week. It traded at 63.92 US cents at 8am and 63.41 cents yesterday. The trade-weighted index is heading for a 0.8 percent weekly decline, trading at 69.27 at 5pm, up from 68.94 yesterday after it gained against the euro on the prospect of more quantitative easing in the euro zone

A BusinessDesk survey of 10 currency advisers predicted the kiwi would trade between 62.50 US cents and 67.50 cents this week. Six expected the kiwi to decline, two said it might gain and two projected it would stay largely unchanged.

Market volatility calmed down on Wednesday after Chinese state funds bought stocks to prop up equities ahead of a two-day holiday for World War Two Victory Day commemorations, which weighed on risk-sensitive currencies such as the kiwi. As that draws to a close, investors are unsure how Chinese stocks will react when they reopen on Monday.

"The market's taking quite a lot of direction from the back of China's equity markets, which have been bouncing around 3 or 4 percent either side of where it's opening," said John Chisholm, senior trader at HiFX in Auckland. "That seems to be driving the bulk of the Antipodes," he said, referring to the Australian and New Zealand currencies.

Meantime, US non-farm payrolls for August are expected to show the world's biggest economy added 218,000 jobs last month when the figures are released on Friday in Washington, and a strong print leaves open the door for a rate hike by the Fed this year.

HiFX's Chisholm said the payrolls number is the main event the market is waiting for, and could be enough to push the kiwi below 63 US cents, where it's found a lot of support.

"If it's a good number then we could see the kiwi come off a little bit more - something with a 62 on the front certainly is a realistic possibility over the next 24 hours," he said.

The kiwi rose to 57.10 euro cents from 56.53 cents yesterday after the European Central Bank lowered its outlook for the regional economy and floated the prospect of expanding its bond-buying programme to stimulate growth. The local currency advanced to 41.73 British pence from 41.46 pence yesterday.

The kiwi climbed to 91.18 Australian cents from 90.33 cents yesterday, and rose to 4.0392 Chinese yuan from 4.0296 yuan. It fell to 75.81 yen from 76.43 yen.

New Zealand's two-year swap rate fell 1 basis point to 2.78 percent at 5pm in Wellington, and the 10-year swap declined 2 basis points to 2.59 percent.

BusinessDesk.co.nz

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