Dollar falls as weaker commodity prices weigh on growth-linked currencies

The New Zealand dollar extended its decline in local trading as weaker commodity prices weighed on currencies linked to the production and export of raw materials.

The kiwi fell to 63.06 US cents at 5pm in Wellington from 63.32 cents at 8.30am, and down from 63.99 cents yesterday. The trade-weighted index declined to 68.97 from 69.79 yesterday.

Stocks across Asia followed Wall Street lower on persistent fears over China's economic growth, and while traders continue to second-guess when the Federal Reserve will start raising interest rates. The heightened volatility weighed on commodity prices, with the Thompson Reuters Core Commodity CRB Index, a measure of 19 commodity prices, falling 1.5 percent yesterday, and demand for currencies such as the kiwi and Australian dollars, whose economies rely on the exports such as iron ore, coal, dairy products and meat.

"The direction came from overnight with mixed data out of the US, also the Chinese data was negative," said Grant Bodle, senior FX dealer at HiFX in Auckland. "Gold and oil are down, and when commodity prices are lower, the kiwi and Aussie suffer."

HiFX's Bodle said commodity prices have been "whippy" in recent weeks, and today's decline will probably be short-lived. The kiwi dollar has traded between 62 US cents and 64 cents since mid-August in a consistent downtrend, and Bodle said it's probably ready for a brief correction above 64 cents.

The Reserve Bank continued to be a net buyer of New Zealand dollars in August, purchasing a net $81 million in the month, according to data released today. The bank bought a net $191 million in July. The central bank yesterday announced it would pay the government a $530 million dividend after a weaker kiwi dollar generated gains from its holdings of foreign currencies.

New Zealand's two-year swap rate fell three basis points to 2.69 percent at 5pm in Wellington, and the 10-year swap dropped eight basis points to 3.48 percent.

The local currency declined to 90.64 Australian cents from 91 cents yesterday, and fell to 4.0129 Chinese yuan from 4.0769 yuan. It dropped to 75.43 yen from 77.02 yen yesterday, and fell to 56.01 euro cents from 57.18 cents. The kiwi decreased to 41.58 British pence from 42.09 pence yesterday.

(BusinessDesk)