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NZ dollar holds near 3-month low as RBNZ shows LVR’s kick in

The New Zealand dollar held near a three-month low after Reserve Bank figures showed its loan restrictions on low equity mortgages are slashing levels of highly leveraged borrowing by home buyers.

The kiwi traded at 81.66 US cents at 5pm in Wellington from 81.24 cents at 8am, and down from 81.92 cents yesterday. It fell as low as 81.13 cents yesterday. The trade-weighted index declined to 76.73 from 76.94 yesterday.

New Zealand's central bank figures today showed just 11.7 percent of new home lending was being written on a deposit of 20 percent or less in October, down from 25.5 percent in September and as much as 30 percent earlier this year.

The RBNZ imposed restrictions on high loan-to-value ratio lending last month in a bid to cool off the property market without having to resort to an interest rate hike, which could stoke demand for what it sees as an over-valued kiwi dollar.

"The amount of loans exceeding the threshold has dropped, showing that the policy is working," said Michael Johnston, senior dealer at HiFX in Auckland. "At the margin that should be having a bit of an impact on pricing and taking the pressure off the Reserve Bank to raise interest rates."

Central banks on both sides of the Tasman have been uncomfortable with the strength of their relative currencies, with the RBNZ intervening earlier this year and the RBA last week saying it was still open-minded on taking action.

"The big driver as we see it, the reserve banks in New Zealand and Australia don't like their currencies up here and are actively talking them down," HiFX's Johnston said.

Australia's central bank was thought to have intervened after figures showed net sales of A$330 million last month were seen an attempt to drive down the currency. However, it was simply a routine payment to the International Monetary Fund. The kiwi fell to 89.47 Australian cents from 89.76 cents yesterday.

Trading will likely be light for the rest of the week with the Thanksgiving Holiday in the US, set to keep markets shut in New York all day on Thursday and part of Friday.

The kiwi rose to 83.32 yen at 5pm in Wellington from 83.10 yen yesterday, and fell to 60.12 euro cents from 60.27 cents. It declined to 50.07 British pence from 50.50 pence.

(BusinessDesk)

Comments and questions
1

For those of us who have been saying all along that the Auckland house price bubble was fuelled solely by lax mortgage lending and low rates, vindication is at hand. A price correction is coming as the only reason buyers could afford to buy their next hosue was because the idiot at the end of the chain was gearing themselves up to the eyeballs with debt. With all these poor credit risks exiting the market, and rates rising for those who bought with big mortgages, forced sales are just around the corner as rates move up. And guess what? There will be far fewer buyers so prices will collapse.