NZ dollar slips as US debt deadline approaches

Wednesday 16th October 2013

The New Zealand dollar slipped as investors lessen their exposure to riskier currencies on concern about a failure by US politicians to reach agreement ahead of tomorrow's deadline for averting a debt default.

The kiwi weakened to 83.64 US cents at 8am in Wellington, from 83.85 cents at the 5pm market close yesterday. The trade-weighted index declined to 77.65 from 77.76 yesterday.

Republican and Democrat politicians in the US have been unable to agree on the budget with a partial government shutdown now in its third week. Negotiations have so far failed to strike a deal on raising the US borrowing limit by an Oct 17 deadline to enable the government to pay its bills in coming weeks.

"The kiwi and the Aussie were quite elevated yesterday and everybody thought there was a deal and all of a sudden we have had the Republicans turn down the Democratic deal and vice versa so that is a little bit of a disappointment," said Martin Rudings, senior advisor at OM Financial. "Now we are getting closer to the end date for the debt ceiling, the risk becomes more apparent that there is a chance of default in the US, so I think we are just taking a little bit of risk off with that uncertainty.

"I don't think it's going on the downside too far unless we do go into that default scenario," Rudings said. "Even though it is down a touch it's still showing that the market believes there is a deal imminent."

Rudings said the New Zealand dollar is likely to remain elevated at above 82 US cents for the remainder of this year because the US government shutdown has delayed the release of key economic data which the Federal Reserve needs to assess when to start reducing its US$85 billion a month bond buying programme. The monetary stimulus programme weakens the greenback.

Richard Fisher, the hawkish president of the Federal Reserve Bank of Dallas, told Reuters that he does not think he could make a case for scaling back bond purchases at the Fed's policy meeting on October 29-30 because of the fiscal stalemate.

"My personal opinion is that it's not in play," Fisher told Reuters on Tuesday. "This is just too tender a moment."

OM Financial's Rudings said tapering the bond buying programme now probably won't start until next year.

"Until that happens, there is no real reason to sell kiwi," Rudings said.

A report in New Zealand today is expected to show consumer prices rose at an annual pace of 1.3 percent in the third quarter from 0.7 percent in the second, moving into the central bank's target band of between 1 percent and 3 percent for the first time in the past year.

A stronger than expected inflation figure would likely push the kiwi higher, Rudings said.

The New Zealand dollar was unchanged at 87.99 Australian cents at 8am in Wellington from 87.98 cents yesterday, and little changed at 61.88 euro cents from 61.83 cents. The kiwi slipped to 82.21 yen from 82.56 yen yesterday, and declined to 52.30 British pence from 52.43 pence.

BusinessDesk.co.nz

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