NZ dollar hits 6-month low as global growth fears dent investor sentiment

Monday 17th December 2018

The New Zealand dollar fell to a six-month low as weaker than expected European and Chinese data added to fears about the pace of global growth.

The kiwi traded at 67.85 US cents as at 8am in Wellington from 67.95 cents on Friday in New York and 67.96 cents in Asia last week. The trade-weighted index was at 74.42 from 74.46 last week.

Stocks on Wall Street fell on Friday, with the Standard & Poor's down 1.9 percent, as investors remained nervous about the impact geopolitics might have on the global economy. Declining European services and manufacturing surveys and weaker-than-expected Chinese retail sales and industrial production figures added to the malaise. The Federal Reserve's last policy meeting of the year is the major event this week, with analysts watching for a change the track for future interest rate hikes.

"A risk-off mood pervaded markets on Friday, with US equities back to April levels as global data continues to disappoint," ANZ Bank New Zealand economists Sharon Zollner and Philip Borkin said in a note. "The NZD was hit hard during the New Zealand session on Friday on poor China data, and it failed to recover meaningfully overnight."

Local data today include the BNZ-BusinessNZ performance of services index and the October accommodation survey. The main domestic focus this week is third-quarter gross domestic product.

The kiwi was also dented by the Reserve Bank's proposals to impose stricter capital requirements on domestic lenders. The central bank estimated the impact of new rules could lower the GDP by about 0.2 percentage points over the five-year phase-in period.

Bank of New Zealand interest rate strategist Nick Smyth said the proposals could push up lending rates and reduce banks' appetite to supply credit, although the RBNZ expects the impact to be minimal.

"While one interpretation might be that higher capital requirements are a pseudo-tightening and therefore increase the chances that the next move by the RBNZ might be a rate cut, there was little reaction in the domestic rates market," Smyth said.

New Zealand's two-year swap rate started the week at a six-week low 2.03 percent and the 10-year swap was at 2.72 percent, the lowest since October 2016.

The kiwi rose to 94.60 Australian cents from 94.31 cents last week and increased to 4.6850 Chinese yuan from 4.6795 yuan. It traded at 53.83 British pence from 53.82 pence last week and edged up to 60.02 euro cents from 59.93 cents. The local currency traded at 76.91 yen from 76.86 yen last week.

(BusinessDesk)

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