NZ dollar drops to 8-month low vs yen on risk aversion

Monday 13th October 2014

The New Zealand dollar hit an eight-month low against the yen as investors favoured low risk currencies such as the yen amid concerns about global growth.

The kiwi touched 83.82 yen, the lowest level since February, and was trading at 84.09 yen at 8am in Wellington, from 84.79 yen at 5pm on Friday. The local currency was at 78.19 US cents, from 78.14 cents at the New York close and 78.66 cents on Friday.

Investors are turning away from higher risk currencies such as the kiwi and Aussie on concern about the outlook for the global economy following weakness in Europe, Japan and China. Global growth concerns have strengthened currencies such as the yen while weighing on commodities and stock markets.

"It's a risk aversion play, the yen tends to outperform in bouts of risk aversion where investors are nervous and kiwi being one of those currencies that's linked to global growth tends to perform poorly, so that's the classic response that we've seen in currency markets," said Bank of New Zealand currency strategist Raiko Shareef. "Because they have this asymmetric response to investor nervousness, that cross tends to hurt the most when it comes to these sorts of episodes.

"It definitely can go lower, it just really depends on how prolonged this episode of risk aversion is," Shareef said. "The data this week will prove quite important, especially out of the troubled spots included Europe, Japan and China."

The kiwi could grind lower to 83 yen but is unlikely to drop below 82 yen unless there is a sudden risk aversion event, Shareef said.

Japanese banks are closed today in observance of Health-Sports Day. Chinese trade data for September is scheduled for release this afternoon.

In New Zealand, food price data for September is published at 10:45am.

The New Zealand dollar advanced to 89.88 Australian cents from 89.65 cents on Friday, weakened to 61.83 euro cents from 61.94 cents and declined to 48.63 British pence from 48.79 pence.

The trade-weighted index slipped to 76.27 from 76.50 on Friday.

BusinessDesk.co.nz

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