NZ dollar falls on weak oil prices, local importer selling

Thursday 31st December 2015

The New Zealand dollar declined as weaker oil prices weighed on commodity currencies and local importers sold the kiwi to pay for Christmas goods in a period of low foreign exchange liquidity.

The kiwi fell to 68.27 US cents at 8am in Wellington, from 68.56 cents at 5pm yesterday. The trade-weighted index slipped to 74.18 from 74.40 yesterday.

Oil prices fell 3 percent after a report by the US Energy Information Administration showed American inventories rose 2.63 million barrels last week amid warmer than usual northern hemisphere weather, which added to concerns about an oil supply glut. That weighed on commodity linked currencies such as the kiwi, which is weaker as local importers sell the currency to pay for stock brought in for the Christmas period.

"A lot of importers are making payments and paying bills to clear them off the books for the end of the month or the end of the year and therefore there will be natural selling pressure on the New Zealand dollar," said Derek Rankin, director at Rankin Treasury Advisory in Auckland.

While most currency market turnover is normally speculative, in quieter times such as the Christmas and New Year holiday period, currencies are more likely to be impacted by trade flows such as importer selling, Rankin said.

Currency and equity markets are also being impacted by volatile oil prices, he said.

Oil "has dropped again overnight because of the buildup of stocks of oil for this time of the year," Rankin said. "They have got an unusually warm period at the moment in the northern hemisphere, they are not using anywhere near the oil they normally need and therefore they have got higher stocks, and that's on top of the fact that they have got record stocks anyway. It wouldn't matter so much if we didn't have thin markets."

Separately, the International Monetary Fund managing director Christine Lagarde said global economic growth will be disappointing next year and the outlook for the medium term has also deteriorated. Writing in the German newspaper Handelsblatt, Lagarde cited rising US interest rates, an economic slowdown in China, a slowdown in global trade, a decline in raw material prices, weak financial sectors in many countries and rising financial risks in emerging markets.

The New Zealand dollar fell to 93.75 Australian cents from 94.11 cents yesterday, dropped to 62.53 euro cents from 62.73 cents, weakened to 46.04 British pence from 46.23 pence, and declined to 82.33 yen from 82.58 yen.

It slipped to 4.4304 yuan from 4.4497 yuan yesterday. China's central bank has suspended at least three foreign banks from conducting some foreign exchange business until the end of March, as the Chinese government seeks to stabilise the yuan, Reuters reported, citing people it didn't identify.

BusinessDesk.co.nz

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