NZ dollar little changed as US political stalemate continues

Wednesday 9th October 2013

The New Zealand dollar was little changed as investors hold off making bets on the currency while US lawmakers remain in a stalemate over budget talks as the deadline to increase their debt ceiling looms.

The kiwi was little changed at 82.90 US cents at 8am in Wellington from 82.93 cents at the 5pm market close yesterday. The trade-weighted index was little changed at 76.86 from 76.88 yesterday.

The US government partial shutdown is now in its second week after politicians failed to agree on passing the budget. Of more concern to financial markets is the approaching Oct.17 deadline for Congress to raise its debt ceiling or risk defaulting on its debt obligations

"We are starting to see the political stalemate erode financial market sentiment, risk aversion is pushing higher, equity markets are selling off and the market is pricing in an increased risk of US government default in the short-term US yields, but we haven't seen any of that take a toll on foreign exchange markets today," said Mike Jones, currency strategist at Bank of New Zealand.

"The kiwi has just been washing around in what is now a pretty familiar 82.70-83.30 US cent range and that continued again overnight. The risk today is that we see a downside break from that range," Jones said. "Investors are starting to get rattled and that should see the kiwi dollar under pressure.

"Markets are in a state of paralysis really, investor interest is really quite lacking, volumes are low and markets are just going to probably track sideways in the hope we get some sort of resolution, but it doesn't look likely for this week," Jones said.

In New Zealand today, reports on September credit card spending and house prices are scheduled for release.

The key release for the week is tomorrow morning's publication of the US Federal Reserve Open Market Committee minutes from the September meeting when financial markets were surprised by the decision not to start tapering the US$85 billion a month bond buying programme.

"There is a chance they might say that the decision not to taper in September was a very close call and in that case you might see the US dollar find a few more friends," said the BNZ's Jones. "There is probably a risk that the US dollar pushes higher out of the minutes and that of course would further weigh on the kiwi."

The New Zealand dollar was little changed at 87.93 Australian cents from 87.98 cents yesterday ahead of a report on Australian Consumer Confidence today. The kiwi was unchanged at 80.38 yen and little changed at 51.55 British pence from 51.57 yesterday and at 61.11 euro cents from 61.14 cents.

BusinessDesk.co.nz

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