Kiwi little changed as Chinese liquidity jitters linger

The New Zealand dollar was little changed in local trading as investors remained on edge over China's banking liquidity, creating concerns about the strength of the world's second-biggest economy.

The kiwi traded at 77.35 US cents at 5pm in Wellington from77.40 cents at 8am and up from 77.16 cents yesterday. The trade-weighted index rose to 72.98 from 72.79 yesterday.

The China Interbank Offered Rate (chibor), the average interest rate at which term deposits are offered between Chinese prime banks, was 8.83 percent for three months, up from 5.4 percent yesterday, when the People's Bank of China tightened banking liquidity.

The threat of a credit crunch is fuelling fears China's economy may slow down, which is seen as a drag on the transTasman nations who both export large quantities of goods into the world's most populous nation.

"People need to get a lot more comfortable about the situation in China for the kiwi to start pressing higher," says Chris Tennent-Brown, FX strategist at Commonwealth Bank of Australia in Sydney.

"If credit conditions are going to be tight, people will have question marks over the outlook, which impacts on both Australia and New Zealand."

He says the currency will probably trade between 77 US cents and 78 cents for the rest of the week as markets digest the prospect of the US Federal Reserve unwinding its asset purchases this year, and as China's liquidity woes weigh on Asia.

New Zealand Finance Minister Bill English today told Bloomberg the local currency is still "a bit overvalued", though there is not much the country can do about it.

Reserve Bank deputy governor Grant Spencer is scheduled to give a speech in Wellington tomorrow on macro-prudential policy and the New Zealand housing market.

Rising property prices have been a counterbalance to a strong currency for the central bank, which has had to balance the two competing influences on inflation when reviewing monetary policy.

The kiwi was little changed at 83.48 Australian cents at 5pm in Wellington from 83.47 cents yesterday and edged up to 75.57 yen from 75.23 yen. It rose to 59.18 euro cents from 58.83 cents yesterday and gained to 50.15 British pence from 49.98 pence.

(BusinessDesk)