NZ dollar holds at 2 1/2 year low as investors mull outlook

Friday 23rd January 2015

The New Zealand dollar held at a key two and a half year low as investors mull whether the currency is a good bet because of its high yield or whether it is risky bet given concern about slowing global growth.

The kiwi touched 74.93 US cents, and was trading at 75.07 cents at 8am in Wellington, from 75.25 cents at 5pm yesterday. The trade weighted index was little changed at 77.05 from 77.08 yesterday.

The New Zealand dollar yesterday pushed through the key 75.50 US cent level, breaking the consolidation trend it has been in since September last year, following its leap down in July after the central bank stepped up its threat of intervention. The European Central Bank confirmed overnight it will launch a bigger than expected 60 billion euro a month bond purchase programme to stimulate the region's economy and boost inflation. Investors are now mulling whether the kiwi is a good bet given New Zealand's strong fundamental outlook amid weakness elsewhere, or whether a slump in commodity prices and a round of interest rate cuts by central banks signals weak global demand that would hit the nation's small export focused free market economy.

"That's the dichotomy going on in New Zealand at the moment," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "Last night, in the face of such a positive surprise, kiwi was relatively stable and that indecision, which way we jump from that, will decide the fate of the kiwi and it's not going to be a small move when markets decide which way we are going. The key thing which is really interesting for the kiwi going forward is the fight and the indecision in markets."

In May and June of 2012, the kiwi reached lows of around 74.50 US cents, which it also touched in December 2011. The previous low was in November 2011 of 73.67 US cents.

The local currency is currently at a "significant level" as investors mull the outlook, said ANZ's Tuck.

"We are definitely at a very interesting area," he said. "We are back in the zone which the kiwi has spent quite a bit of time bouncing off and bouncing around. We haven't done a definite break yet. We have quite definitively broken through for awhile now those 2013 lows and we are basically sitting at the 2012 lows. We have broken the range from September so we look like we are ready to take another leap down."

The New Zealand dollar jumped to 65.98 euro cents from 64.83 cents yesterday after the ECB detail its quantitative easing plans.

The local currency rose to 49.95 British pence from 49.68 pence yesterday, slipped to 88.79 yen from 88.99 yen and fell to 92.95 Australian cents from 93.24 cents.

BusinessDesk.co.nz

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