NZ dollar sinks further as air crash, Gaza offensive sap risk appetite, RBNZ looms

Friday 18th July 2014

The New Zealand dollar extended its slide as the crash of a Malaysian passenger jet in rebel-held Ukraine and a ground offensive in Gaza sapped risk appetite worldwide, although the kiwi’s decline was limited by uncertainty about next week’s Reserve Bank review.

The kiwi fell to 86.75 US cents at 8am in Wellington, from 86.93 cents in late Wellington trading yesterday. The trade-weighted index fell to 80.72 from 80.96.

Shares fell on Wall Street, while gold, US Treasuries and the yen gained, typically a sign that investors looking for safety are trumping those seeking risk after Ukraine said the Malaysian plane was shot down by pro-Russian rebels. Meantime, Israel has begun a ground offensive in Gaza after failing to agree terms to a peace accord with Hamas.

“You would expect the kiwi to remain under pressure,” said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. He sees a range of between 86.30-40 US cents and 87.20 cents in the next 24 hours although the decline may be limited by a lack of fresh economic data.

Stronger job advertisements in ANZ’s survey and a pick-up in consumer confidence “is a reminder that the New Zealand economy overall is solid,” Tuck said.

Traders are cautious of the Reserve Bank in case it gives a more hawkish account in next week’s interest rate review, where governor Graeme Wheeler is expected to raise the official cash rate a quarter point to 3.5 percent.

“They’re wary of selling something with a positive carry” ahead of the RBNZ’s July 24 statement, Tuck said. Once that is out of the way there was a prospect that the kiwi could weaken in line with commodity prices.

AMP Capital New Zealand, which manages more than $18 billion of assets, said yesterday it was underweight the New Zealand dollar even while holding more cash than the size of its portfolios would suggest.

Adding to the mix of forces driving world markets, the Philadelphia Federal Reserve's Business Outlook Survey, a measure of regional manufacturing activity in the US, rose to the highest level in more than three years, surprising economists, while weekly initial jobless claims came in lower than expected.

James Bullard, president of the St. Louis Federal Reserve said the Fed may have to raise interest rates more quickly “if macroeconomic conditions continue to improve at the current pace.”

The kiwi fell to 64.04 euro cents from 64.25 cents yesterday and dropped to 87.68 yen from 88.20 yen. It traded at 50.68 British pence from 50.70 pence and decreased to 92.65 Australian cents from 92.78 cents.

BusinessDesk.co.nz

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