NZ dollar falls as Chinese share trading suspended again

Thursday 7th January 2016

The New Zealand dollar fell as the suspension of trading on Chinese share markets for a second time this week stoked fears about the strength of the world's second-biggest economy and the impact on its trading partners.

The kiwi traded at 66.36 US cents at 5pm in Wellington from 66.29 cents at 8am, down from 66.53 cents yesterday. The local currency rose to 4.3737 Chinese yuan from 4.3545 yuan yesterday.

Trading in Chinese stocks was suspended after the Shanghai Composite index fell 7.3 percent and the Shenzhen Composite sank 8.3 percent, triggering the market's circuit-breaker rules for a second time this week. That fuelled fears among investors who were already nervous about China's economy, and sapping their appetite for risk-sensitive assets such as the kiwi and Australian dollars. At the same time, upbeat US private jobs data supported demand for the greenback on the expectation it could spur the Federal Reserve to keep raising interest rates.

"That sort of shock was always going to give us a risk-off move," said Alex Hill, head of corporate FX at NZForex in Auckland. The risk-off sentiment and prospect of higher US rates "is a double-edged sword for the likes of kiwi/US and Aussie/US."

New Zealand's two-year swap rate slipped two basis points to 2.76 percent at 5pm in Wellington, and 10-year swaps dropped seven basis points to 3.56 percent.

The kiwi rose to 94.14 Australian cents from 93.30 cents yesterday as investors view a Chinese slowdown having a greater impact on Australia's economy, and after government data showed building approvals slumped in November.

NZForex's Hill said the kiwi/Australian dollar cross rate "probably wants to be a bit lower" with 94.50/95 Australian cents a big resistance level that was likely to cap the cross.

The kiwi fell to 78.42 yen from 78.92 yen. It dropped to 61.32 euro cents from 61.90 cents yesterday, and was little changed at 45.34 British pence from 45.37 pence. The trade-weighted index was little changed at 73.02 from 72.94 yesterday.

BusinessDesk.co.nz

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