Dollar heads for 1.3% weekly drop as China's currency tweaks raise local export fears

The New Zealand dollar is heading for a 1.3% weekly fall against the greenback as efforts to let China's yuan trade more freely, leading to the currency's devaluation, stoked fears about the strength of the world's second biggest economy and weighed on the local export outlook.

The kiwi fell to 65.31USc at 5pm in Wellington from 66.16USc on Friday in New York last week. It was down from 65.77USc at 8am and 66.09USc yesterday. The trade-weighted index was at 70.18 from 70.90 yesterday, and is heading for a 0.2% increase on the week. The kiwi gained 1.8% over the course of the week against the yuan.

The People's Bank of China blindsided the market on Tuesday when regulators took the yuan lower when setting the daily fix against the US dollar, and allowed the market greater influence in resetting the currency's price. That led to volatile trading across risk-sensitive asset classes and weighed on the Australian and New Zealand dollars, with both nations counting China as their biggest trading partner. The kiwi fell to 4.1797 Chinese yuan at 5pm in Wellington from 4.2360 yuan yesterday, when the People's Bank of China acted to allow the yuan to appreciate by about 1% in today's fix.

"We had the People’s Bnak of China tweak the yuan again toda, but there wasn't as much drama about that," said Tim Kronfeld, senior dealer at OMF in Auckland. "We had a much weaker retail sales number today, which saw the kiwi come off, but we had a pretty quiet day after a reasonably choppy week."

Government data today showed New Zealand's retail sales volumes rose 0.1% in the June quarter, less than expected, and held back by more expensive petrol prices, and weighing on the kiwi dollar.

Standard & Poor's issued a warning about the country's economic imbalances with the rapid house price escalation in Auckland posing a threat to lenders, which it said would weigh on financial institutions in the event of a sharp correction.

New Zealand's two-year swap rate rose to 2.87% at 5pm in Wellington from 2.83% yesterday, and the 10-year swap advanced to 3.63% from 3.585%.

The local currency dropped to 88.58 Australian cents from 89.54 cents yesterday, sliding sharply after the retail trade data. The kiwi sank to 81.23 yen from 82.26 yen yesterday, and dropped to 58.55 euro cents from 59.34 cents. It declined to 41.81 British pence from 42.32 pence yesterday.

(BusinessDesk)