Dollar bounces from six-year low after market volatility takes a breather

The New Zealand dollar bounced from a six-year low after two days of turmoil spurred by the prospect of deteriorating Chinese economy.

The kiwi rose to 64.99 US cents at 5pm in Wellington, having briefly slumped as low as 62.44 cents, and is down from 65.89 cents yesterday. The trade-weighted index was little changed at 70.01 from 71.04 yesterday.

Another decline in the Chinese stocks didn't spread to other equity markets across Asia as investors took a breather after the sharp selloff yesterday. Australia's S&P/ASX 200 index was up 2.4 percent in afternoon trading and Hong Kong's Hang Seng gained 1.6 percent, while the Shanghai Composite fell 4.3 percent. That helped limit the decline in other risk-sensitive assets, which have been weighed on by growing concerns about the strength of China's economy.

"People have got a bit of a clear head," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "The fall in the kiwi, I wouldn't get too carried away with."

Westpac's Speizer said he expected the kiwi will continue to grind lower towards 62 US cents, though dwindling demand for greenback will ensure that decline is "very, very slow."

New Zealand firms anticipate looser monetary policy by the end of the third quarter, according to the Reserve Bank's survey of expectations. A net 48.4 percent of respondents see easier conditions. That comes a day after deputy governor Grant Spencer said interest rates hikes "are likely to be off the table for some time" while the central bank contends with slowing growth and a housing imbalance in Auckland.

New Zealand's two-year swap rate slipped two basis points to 2.82 percent at 5pm in Wellington, while 10-year swaps declined 2 basis points to 3.52 percent.

The kiwi sank to 90.20 Australian cents from 91.15 cents yesterday, and dropped to 4.1667 Chinese yuan from 4.2143 yuan. It declined to 56.26 euro cents from 57.52 cents yesterday, and fell to 41.19 British pence from 42 pence. The local currency declined to 77.69 yen from 79.80 yen yesterday.

(BusinessDesk)