NZ dollar falls as weak data fuels rate cut expectations, Greek impasse weighs

Tuesday 30th June 2015

The New Zealand dollar fell as downbeat business confidence and soft building intentions stoked expectations for deeper interest rate cuts than previously thought, while the Greek debt impasse continued to sap investors' appetite for riskier assets.

The kiwi fell to 68 US cents at 5pm in Wellington from 68.60 cents at 8am and 68.33 cents yesterday. The trade-weighted index declined to 71.13 from 71.69.

New Zealand firms grew pessimistic about the country's economic outlook for the first time in four years in the ANZ Business Outlook, while separate government showed new building consents were flat in May. That prompted Deutsche Bank New Zealand to predict a fourth cut to the official cash rate, which it sees falling to 2.5 percent at the October meeting. Traders are pricing in 49 basis points of cuts to the OCR over the coming 12 months, according to the Overnight Index Swap curve.

"We saw competitors call for a fourth cut this year and that upped the ante," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "ANZ still expects three cuts this year, but markets were quite interested in that so kiwi was under pressure."

The impasse over Greece's 1.6 billion euro debt owed to the International Monetary Fund continued to keep investors wary of riskier assets, such as the kiwi. Greece is holding a referendum on a bailout plan this week, which European leaders have called a vote on whether the Mediterranean nation will stay with the euro.

While Greece will miss the June 30 deadline to repay the IMF, the nature of the debt means it goes into arrears before the international funding agency declares the debt as being in default. Since the debt isn't a government bond, it won't be a default for credit default swap purposes.

ANZ's Tuck said the markets are happy to relax over the Greek situation, though upcoming inflation data will likely show Europe's economy still needs more support.

The kiwi fell to 60.75 euro cents from 62.05 cents yesterday.

The local currency dropped to 88.63 Australian at 5pm in Wellington from 89.31 cents yesterday after Reserve Bank of Australia figures showed household credit growth remains strong across the Tasman.

The kiwi declined to 4.2212 Chinese yuan from 4.2420 yuan yesterday, and fell to 83.21 yen from 83.75 yen. It decreased to 43.23 British pence from 43.50 pence yesterday.

New Zealand's two-year swap rate increased to 3.08 percent at 5pm in Wellington from 3.06 percent yesterday, and the 10-year swap rate advanced to 3.89 percent from 3.85 percent.

BusinessDesk.co.nz

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