NZ dollar falls as building consents, business confidence disappoint

Monday 29th February 2016

The New Zealand dollar fell as data painted a grimmer picture of local growth and economists at the country's biggest lender joined rivals in predicting the Reserve Bank will cut interest rates even further this year.

The kiwi dropped to 65.72 US cents at 5pm in Wellington from 66.39 cents at 8am and 66.25 cents on Friday in New York. The trade-weighted index declined to 71.82 from 73.43 last week.

Risk sensitive currencies such as the kiwi started the local trading session on the back-foot after upbeat US economic data eased concerns about the strength of the world's biggest economy, and the New Zealand dollar got dragged down after local figures showed building consents dropped 8.2 percent in January, while firms' confidence dimmed in February. At the same time, ANZ's economists joined other forecasters in predicting two cuts by the Reserve Bank this year, having previously projected no change from the current 2.5 percent level.

"There was a perfect little storm with the building consents and the ANZ business outlook being quite a lot weaker today," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. "The kiwi's just come off the top of the range and we need to be careful we don't get too bearish."

New Zealand's two-year swap rate fell three basis points to 2.38 percent, and 10-year swaps extended their decline to a new record low 3.05 percent.

Traders will be watching the upcoming GlobalDairyTrade auction on Tuesday in the US, with futures pricing indicating a gain of between 5-and-10 percent. That would end the auction's string of declines since the start of the year, which has added pressure on the country's biggest export earner, dairy.

A BusinessDesk survey of nine analysts predicts the kiwi will trade between 64.50 US cents and 67.80 cents this week. Six expect a decline, two are picking it to be neutral with a slight negative bias and one bets it will be flat. None of them predict a gain.

The Reserve Bank of Australia will review monetary policy tomorrow and is expected to keep the target cash rate unchanged at 2 percent. The kiwi fell to 92.02 Australian cents at 5pm in Wellington from 92.88 cents on Friday in New York.

OMF's Rudings said he expects the weakness in the kiwi will show up in the Australian dollar cross-rate, and he anticipates it will drop below 92 Australian cents before the GDT auction.

The local currency dropped to 4.3048 Chinese yuan from 4.3321 yuan on Friday in New York, and fell to 74.50 yen form 75.52 yen last week. It declined to 47.44 British pence from 47.75 pence last week, and fell to 60.18 euro cents from 60.57 cents.

BusinessDesk.co.nz

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