Kiwi heads for 1.8% weekly fall against USD as surprises clear out speculative positions

The New Zealand dollar is heading for a 1.8 percent weekly fall against the greenback after a handful of curveballs this week – including confirmation of a Reserve Bank intervention – prompted speculative investors to trim their long positions.

The kiwi fell to 83.54 US cents at 5pm from 83.75 cents at 8am and 84.56 cents yesterday. The trade-weighted index slipped to 77.83 from 77.97 yesterday and is heading for a 0.9 percent weekly decline. A BusinessDesk survey of six strategists on Monday predicted the currency may rise this week.

Speculative investors have pared back their bets that the kiwi will gain after several surprises, including lower than expected unemployment rate and the news that the central bank has been active in intervening in foreign exchange markets.

New Zealand has been a favourite among investors seeking higher yields in recent months, offering positive returns in a growing economy.

"Markets got blindsided by a whole series of one-off shocks," says Mike Jones, currency strategist at Bank of New Zealand in Wellington. "The big sell-off in the kiwi has been a rejigging of speculative positions that got out of whack where net longs were too large."

He says the kiwi does not look like turning, with any pull back to 82/83 US cents attracting buyers. "That reflects the sentiment in the market which is still look to buy the kiwi on dips."

The Reserve Bank of Australia trimmed its inflation outlook today after cutting the benchmark rate a quarter-point to 2.75 percent on Tuesday. The kiwi rose to 82.97 Australian cents from 82.60 cents yesterday.

Mr Jones says the kiwi is overdue for a pullback against the Australian dollar but may continue back to its long-run average at 85 Australian cents as the interest rate differential returns to New Zealand's favour.

The kiwi jumped to 84.42 yen from 83.45 yen yesterday after Japan's currency weakened to 100.98 per US dollar, the first time it has broken the 100-mark in four years.

It slipped to 64.11 euro cents from 64.23 euro cents yesterday and dropped to 54.12 British pence from 54.40 pence.

(BusinessDesk)