NZ dollar gains vs. Australian dollar on Chinese stock rout

Tuesday 28th July 2015

The New Zealand dollar rose to a six and a half week high against its trans-Tasman counterpart after a slump in Chinese equities markets weighed more heavily on the currency of Australia, which counts China as its biggest export market.

The kiwi rose as high as 90.91 Australian cents, and was trading at 90.71 cents at 8am in Wellington from 90.36 cents yesterday. It gained to 66.06 US cents from 65.88 cents yesterday.

The Chicago Options Board Exchange's Volatility Index, known as Wall Street's 'fear gauge', rose to a two week high as stocks fell on Wall Street and in Europe after an 8.5 percent slump in China's Shanghai Composite index yesterday. The prospect of a slowing Chinese economy is weighing on exporters such as Australia and New Zealand, which rely on the world's second biggest economy buying their raw materials, and prices for iron ore, Australia's biggest commodity export, have been under pressure over the past week.

"Chinese stocks plunged and took other stocks with them around the world," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. Should the kiwi hold its gains against the Aussie, "then it signals further gains in the days ahead."

Speizer said the kiwi could rise to as high as 91.50 Australian cents in the short term.

Traders are awaiting Reserve Bank governor Graeme Wheeler's speech on the outlook for New Zealand's economy tomorrow, where he's expected to provide more guidance to the market after the currency gained following last week's rate cut.

The market is pricing in 42 basis points of interest rate cuts to the 3 percent official cash rate over the coming 12 months, according to the Overnight Index Swap curve.

The kiwi was little changed at 81.36 yen at 8am in Wellington from 81.34 yen yesterday, and fell to 59.49 euro cents from 59.85 cents yesterday. The currency was almost unchanged at 42.45 British pence, from 42.42 pence. The trade-weighted index inched up to 70.30 from 70.22 yesterday.

BusinessDesk.co.nz

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