Dollar edges lower as markets stabilise on Chinese stimulus following volatility

The New Zealand dollar stabilised overnight following a period of volatile trading as investor confidence about weakness in China abated after the Chinese central bank cut interest rates to stimulate the world's second-largest economy.

The kiwi slipped to 64.78USc at 8am in Wellington, from 64.97USc at 5pm yesterday, having traded between 62.44USc and 67.07USc over the past five days. The trade-weighted index weakened to 69.96 from 70.01 yesterday.

The People's Bank of China said it would lower the one-year benchmark bank lending rate by 25 basis points to 4.6%, and also relaxed reserve requirements, to steady its market after Chinese stock indices yesterday fell more than 7%, following a slump of more than 8% on Monday. That buoyed sentiment from investors who had been worried about the potential knock-on effect from weak demand in Asia's largest economy.

"The market has stabilised overnight," said OMF senior dealer, foreign exchange, Stuart Ive. "Broadly speaking, risk came back on."

Still, while stocks rebounded in Europe and the UK, US equities reversed earlier gains as attention turned back to the potential for Federal Reserve interest rate hikes.

"If the markets all calm down, then the focus comes back on the Fed raising rates," said OMF's Mr Ive. "Although the kiwi dollar has gained as risk has come back on, if the US dollar starts gaining momentum again, and one can only think that that will be the case if it is likely the Fed is going to hike, then the kiwi will come under pressure again without a doubt."

Investors will be focused on the Shanghai stock market open at 1:30pm New Zealand time today, to see if it responds to the latest moves by the Chinese central bank, Mr Ive said.

In New Zealand today, trade data for July is released at 10:45am, while the Reserve Bank releases data on high-debt mortgage lending for July at 3pm.

The New Zealand dollar advanced to 90.88Ac from 90.22Ac yesterday, gained to 56.38 euro cents from 56.24 cents, edged up to 41.27 British pence from 41.18p, slipped to ¥76.95 from ¥77.68, and edged lower to 4.1533 yuan from 41.1648 yuan.

(BusinessDesk)