NZ dollar falls as North Korean missile tests rattle markets

Monday 6th March 2017

The New Zealand dollar fell after reports that North Korea fired four ballistic missiles into the sea off Japan's north-west coast early on Monday, extending the kiwi's decline that's been driven by expectations of US rate hikes.

The kiwi dollar traded at 70.11 US cents as at 5pm in Wellington versus 70.38 cents in late New York trading on Friday. The TWI fell to 76.74 versus 77.15 in Wellington at the end of last week.

Reuters cited South Korean and Japanese officials as saying the missiles, which flew on average 1,000 km (600 miles), were unlikely to have been intercontinental ballistic missiles (ICBM) which could reach the US. Some of the missiles landed in waters as close as 300 km (190 miles) to Japan's north-west coast.

Concerns about how the US might respond, coupled with the fact that Federal Reserve chair Janet Yellen said the central bank will “likely” raise interest rates at a meeting this month and will consider at the meeting whether further adjustments are required, "led to Asia being pretty cautious today," said Stuart Ive, senior foreign exchange dealer at OMF.

"There's a bit of risk off and the kiwi and Aussie are falling hand-in-hand," he said. He noted against that backdrop there was little reaction to news Australian retail sales rose 0.4% in January from a month earlier and the kiwi continues to hold its ground against the Australian dollar "around these low levels."

He said markets will now be focusing on the Reserve Bank of Australia's rate review tomorrow, followed by the milk auction "where the index could fall 10 percent or even more, based on the futures," he said.

The New Zealand dollar traded at 92.54 Australian cents from 92.67 cents in New York on Friday. The local currency slipped to 57.05 British pence from 57.26 pence in New York and dipped to 66.09 euro cents from 66.29 cents. It dropped to 79.79 yen from 80.25 yen and 4.8336 yuan from 4.8537 yuan.

The two-year swap rate was unchanged at 2.30 percent and 10-year swaps lifted 1 basis point to 3.50 percent.

BusinessDesk.co.nz

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