NZ dollar heads for 0.9% weekly gain as global fears see investors dump greenback

Friday 12th February 2016

The New Zealand dollar is heading for a 0.9 percent weekly gain as increasing fears about the strength of the global economy has prompted investors to wind back their greenback holdings, having piled in on the prospect of higher interest rates in the world's biggest economy.

The kiwi rose to 66.84 US cents at 5pm in Wellington from 66.27 cents on Friday in New York last week. It traded at 66.84 cents at 8am and 66.69 cents yesterday. The trade-weighted index increased to 72.56 from 72.35 yesterday, and is heading for a 0.1 percent weekly dip as greenback selling has fuelled demand for currencies such as Japan's yen.

The Chicago Board Option Exchange's Volatility Index, known as Wall Street's 'fear gauge', rose to 28.14, its highest level since August last year, as credit spreads around the world continue to widen on fears there may be a series of corporate defaults and global stock markets extend their slide this year. Growing fears about the pace of economic growth has stoked speculation the Federal Reserve may raise interest rates on a lower and slower path.

"The big thing in global markets is this whole fear factor," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand in Auckland. "Long US dollars are still getting hurt as the markets de-risk, and that's supporting the kiwi at the moment."

ANZ's Tuck said speculation that the New Zealand dollar was getting a boost from the nation's positive yield was probably a secondary consideration for traders who were more concerned about getting their capital back rather than their returns.

"This is not an environment where people are worried about getting an extra half a percent on their capital," he said.

Government data today showed New Zealand food prices rose 2 percent in January, snapping five months of declines. Food prices account for about 17 percent of the consumers price index, which has been tracking below the Reserve Bank's target band of between 1 percent and 3 percent for more than a year.

New Zealand two-year swap rates were almost unchanged at 2.53 percent, while 10-year swaps fell four basis points to 3.11 percent.

The local currency increased to 75.46 yen from 75.22 yen yesterday, and edged up to 4.3914 Chinese yuan from 4.3822 yuan. It declined to 93.78 Australian cents from 93.98 cents yesterday, and was little changed at 59.15 euro cents from 59.07 cents. It rose to 46.18 British pence from 45.86 pence.

BusinessDesk.co.nz

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