Dollar falls as oil prices drop to 12-year low, Chinese stocks decline

The New Zealand dollar dropped as oil prices fell to a 12-year low and Chinese stock markets opened lower, spooking investors out of risk-sensitive assets such as the kiwi and the Australian dollar.

The local currency fell to 64.85 US cents at 5pm in Wellington from 65.22 cents at 8am and 65.61 cents yesterday. The trade-weighted index declined to 71.64 from 72.28 yesterday.

Brent crude oil fell below US$30 for the first time in 12 years on the expectation the resumption of Iranian exports will support a global glut, and weighing on commodity-producing nations including New Zealand and Australia.

The drop in commodity prices added to concerns among investors about riskier assets, with the Royal Bank of Scotland's recommendation this week to dump everything except high quality bonds, and stocks in China were down 1.1 percent in afternoon trading, following yesterday's decline on Wall Street.

"Chinese stocks and US stocks have been hammered and we saw banks come out putting sell recommendations on risk assets," said Mitchell McIntyre, senior corporate FX dealer at NZForex in Auckland. "That's weighing on the Aussie and the kiwi."

McIntyre said thin liquidity makes it easier for large moves in the market, which should settle down as southern hemisphere traders return from their summer holidays.

The yield on New Zealand's 10-year government bond ended the day at 3.305 percent, a 2 1/2-month low, and has dropped 30 basis points since the start of the year on demand from investors seeking more conservative assets. The two-year swap rate fell three basis points to 2.71 percent at 5pm in Wellington, and 10-year swaps dropped five basis points to 3.51 percent.

Government data today showed core retail spending on credit and debit cards unexpectedly fell 0.4 percent in December, a month in which an earlier survey showed a dip in consumer confidence.

The kiwi was little changed at 93.40 Australian cents from 93.32 cents yesterday after Australian Bureau of Statistics figures showed just 1,000 jobs were lost across the Tasman in December, and the unemployment rate was steady at 5.8 percent.

The People's Bank of China again kept the yuan fix steady when setting the currency's trading mid-point. The kiwi dropped to 4.2739 yuan from 4.3192 yuan yesterday.

The local currency fell to 76.20 yen from 77.56 yen yesterday, and sank to 59.59 euro cents from 60.60 cents. It declined to 45.03 British pence from 45.39 pence yesterday.

(BusinessDesk)