NZ dollar weakens as investors favour less risky assets ahead of US government shutdown

Monday 30th September 2013

The New Zealand dollar weakened as investors favoured less risky currencies amid rising political uncertainty ahead of a potential US government shutdown as Congress fails to reach agreement on the budget.

The kiwi slipped to 82.61 US cents from 82.80 cents at the New York close and 82.90 cents at the 5pm Wellington close on Friday. The trade-weighted index fell to 77.05 from 77.30 on Friday.

All eyes are on the partisan political brinkmanship in the US Congress as the deadline for a budget deal to avert a government shutdown at midnight on Monday in Washington is closing in rapidly. Over the weekend, Republicans in the House rejected an emergency spending bill approved by the Senate. Failure to pass a bill before the new financial year starts on Tuesday may result in a government shutdown.

"Investors are now holding their breath to see if a partial US government shutdown can be averted. At this stage, it looks as if we will get a shutdown of some sort," Mike Jones, currency strategist at Bank of New Zealand, said in a note. "With markets nervous and risk aversion on the ascendancy, the New Zealand dollar may find it tough going this week."

Data scheduled for release in New Zealand today is expected to be upbeat, Jones said. Building permits for August will be published at 10:45am and the ANZ business confidence survey is due at 1pm.

The New Zealand dollar edged up to 88.77 Australian cents from 88.64 cents on Friday ahead of the Reserve Bank of Australia's review of its benchmark interest rate tomorrow.

The local currency weakened to 80.63 yen from 81.76 yen on Friday after Japanese Finance Minister Taro Aso said he wasn't considering lowering the effective corporate tax rate, surprising investors who had positioned for a weaker yen on expectations of more fiscal stimulus.

The kiwi slipped to 61.30 euro cents from 61.47 cents on Friday and weakened to 51.28 British pence from 51.64 pence after the Yorkshire Post quoted Bank of England Governor Mark Carney saying he did not see a case for more quantitative easing.

BusinessDesk.co.nz

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