NZ dollar slips as Chinese officials raise concerns about investment levels

Thursday 27th August 2009

The New Zealand dollar slipped after Chinese officials raised concerns about what they see as overcapacity in certain sectors of that economy, damping appetite for so-called commodity currencies such as the Australian and kiwi dollars.

China’s State Council hopes to curb excess investment as it tries to rein in a record credit expansion this year, and hopes to prevent overcapacity in steel and cement. The kiwi dollar rose above 82 Australian cents, the first time in four-and-a-half months, as the Chinese statement raised concerns Australia’s exporters won’t be able to rely on the world’s fourth largest economy to buy its raw materials. The prospect of China cutting back its output sapped investors’ appetites for higher-yields and saw currency traders return to the relative safety of the greenback. The Dollar Index, a measure of the greenback versus a basket of partners, gained 0.5% to 78.62.

China’s statement saw “Australia’s dollar get hit pretty hard with a big impact on their commodities, and the kiwi dollar was dragged along with it,” said Philip Borkin, economist at ANZ National Bank. “Risk was generally taken off as there were a few concerns around the liquidity of China’s economy.”

The kiwi slipped to 68.12 U.S. cents from 68.68 cents yesterday, and dropped to 63.54 on the trade-weighted index, or TWI, from 63.81. It rose to 82.22 Australian cents from 82.06 cents yesterday, and sank to 64.17 yen from 64.62 yen. It declined to 47.77 euro cents from 47.95 cents yesterday.

Borkin said the currency may trade between 67.80 U.S. cents and 68.45 cents today as it continues to find support among traders. Stocks on Wall Street and in Europe were muted amid better than expected business confidence in German and housing data in the U.S.

New Zealand’s trade balance for July comes out today, and Borkin said they will be looking at the Chinese export numbers to see if there have been any major changes that could indicate a risk to the New Zealand economy. The country probably recorded a deficit of $150 million in July, according to a Reuters survey.

Businesswire.co.nz

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