Kiwi heads for 6.7% quarterly slide against greenback after Fed hints at tapering

The New Zealand dollar is heading for a 6.7 percent quarterly slide as the Federal Reserve's signal of an end to its massive monetary stimulus this year sent investors back to the greenback.

The kiwi fell to 78.01 US cents at 5pm in Wellington from 83.68 cents three months ago and 77.93 cents at 8am and 78.19 cents yesterday. The trade-weighted index is heading for a 4 percent quarterly decline to 73.78 at 5pm in Wellington and is down from 73.75 yesterday.

Big institutional investors will rebalance their funds going into the end of quarter, having flocked back to the greenback in a three-month period which saw the US central bank say it plans to pull back on its bond buying programme if economic data continues to improve.

The kiwi and Australian dollars have typically gained during the month of July over the past five years, with many Northern Hemisphere trading desks slightly smaller due to the summer holiday.

"You'll see readjustments of hedges and portfolios tonight – the market's been selling kiwi and Aussie for the month, but they're at the bottom end of the range now," says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland.

With summer holidays looming in Europe there is a risk the kiwi may gain in July, and Mr Kelleher says  he would "rather be a seller on rallies overall" with buying opportunities at 77.25/50 US cents.

The local currency is heading for a 0.7 percent gain against the greenback this week, having started it at 77.51 US cents. A BusinessDesk survey of nine strategists on Monday predicted it would trade between 75 US cents and 80 cents this week, with a downside bias.

Government figures today showed New Zealand's building consents rose a seasonally adjusted 1.3 percent last month, with Auckland apartments and Christchurch dwellings leading the way.

The country's construction sector is seen as a major driver of the economy in upcoming years, with a $40 billion bill flagged to rebuild Christchurch and a major effort to expand Auckland's housing supply.

The local currency is heading for a 5 percent gain against its Australian counterpart and traded at 84.25 cents from 83.97 cents yesterday.

The kiwi rose to 77.12 yen from 76.43 yen yesterday and weakened to 59.70 euro cents from 59.99 cents. It advanced to 51.08 British pence from 50.97 pence yesterday.

(BusinessDesk)