NZ dollar falls as investors reduce risk in face of global bond rout, selloff in stocks

Wednesday 14th September 2016

The New Zealand dollar fell as investor risk appetite waned in the face of a global rout in bonds, weaker stocks and concerns the Federal Reserve may yet surprise markets by hiking interest rates next week.

The kiwi fell to 72.60 US cents as at 5pm in Wellington, and earlier touched as low as 72.29 cents, from 73.39 cents late yesterday. The trade-weighted index fell to 77.59 from 78.13.

The yield on 10-year US Treasuries has climbed to its highest levels since early June while the yield on New Zealand 10-year government bonds has climbed to 2.559 percent, the highest since June 22. The VIX Index, known as Wall Street's fear gauge, rose to 18.8, the highest since the Brexit spike and the CRB Index of 19 commonly traded commodities declined 1.3 percent to a week-low. The market is also mulling the prospects for the Federal Reserve's monetary policy review next week after mixed views from Fed officials unnerved investors, who had expected interest rates to stay on hold until December.

"Bonds everywhere are getting sold off - people are selling equities because rates are higher, so risk currencies are off," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. Meanwhile, "talk of the Fed next week is getting stronger. Markets have succumbed to the view that central banks can't save everything. If you've got negative yields what else are you going to do."

The kiwi didn't move much after figures showed the current account balance turned to a deficit of $945 million in the three months ended June 30, from a revised first-quarter surplus of $1.18 billion. The annual deficit was $7.4 billion, or 2.9 percent of gross domestic product, compared with a forecast in a Reuters survey of 2.7 percent of GDP.

The local currency fell to 97.09 Australian cents from 97.28 cents yesterday and fell to 4.8444 yuan from 4.9017 yuan. It dropped to 64.70 euro cents from 65.33 cents and was little changed at 55 British pence from 55.02 pence. The kiwi declined to 74.77 yen from 75.03 yen yesterday.

New Zealand's two-year swap rate edged up one basis point to 2.03 percent at 5pm in Wellington, and 10-year swaps gained 6 basis points to 2.59 percent.

BusinessDesk.co.nz

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