Dollar rebounds from six-year low

The New Zealand dollar rebounded from a six-year low as China intervened in the market to stabilise its currency.

The yuan had declined sharply following moves aimed at letting it trade more freely.

The kiwi advanced to 66.19USc at 8am in Wellington, from 64.86c at 5pm yesterday after it earlier touched a low of 64.65c.

Against the Chinese currency, known as the yuan or the renminbi, the kiwi rose to 4.2259 from 4.1689 yesterday. The trade-weighted index rose to 71 from 70.19 yesterday.

China's central bank intervened in the market to prop up its currency in the final moments of trading yesterday. The yuan had slumped to a four-year low following a policy change to try and allow the currency to trade more in line with market forces, the Wall Street Journal reported.

The policy change, which came following weaker Chinese economic data at the weekend, prompted speculation the central bank was attempting to devalue its currency to bolster exports, and making other exporting nations such as New Zealand less competitive.

"It appears the Chinese government stepped in on the currency close to the end of trading last night to prop up the renminbi," Bancorp Treasury Services client adviser Peter Cavanaugh says.

"It would be a signal that this is simply a technical adjustment not a policy move. I think they misread the market response and were shocked with the severity of the market response. If they were going to set today's rate at close to market close then they would have three days of devaluation and risk going down a spiral.

"They are trying to make their currency more market driven as part of this whole process of freeing up government controls on the renminbi so that eventually the renminbi can take its place amongst the world's major trading and reserve currencies. If they are the world's second-biggest economy, they want to have a freely trading currency that reflects that," Mr Cavanaugh says. 

The intervention to stabilise the Chinese currency saw the kiwi unwind earlier weakness.

"A lot of the kiwi's fall was front-loading potential near-term falls in the renminbi. Because that renminbi situation has been reversed, the kiwi has had to unwind a lot of that front-loading," Mr Cavanaugh says.

In New Zealand, July data on food prices and manufacturing activity are scheduled for release today.

The New Zealand dollar was little changed at 89.57Ac from 89.59c yesterday, gained to 59.23 euro cents from 58.57c, advanced to 42.36 British pence from 41.68 pence and rose to 82.16 yen from 81.19 yen.

(BusinessDesk)