Kiwi slides big in May on slowing QE, Reserve Bank intervention

The New Zealand dollar is heading for a 5.5 percent slide this month as investors rallied behind the greenback in growing anticipation the US Federal Reserve will start unwinding its asset purchase programme, and after the Reserve Bank signalled a willingness to intervene in foreign exchange markets.

The kiwi increased to 80.75 US cents at 5pm today in Wellington from 80.59 cents at 8am and 81.15 cents yesterday. The trade-weighted index fell to 76.01 from 76.41 yesterday, and is facing a 3.4 percent monthly drop.

But a month ago, the kiwi was at 85.49 US cents.

New Zealand's currency has been falling on the expectation the US central bank is becoming more bullish on rolling back its $US85 billion a month quantitative easing programme.

Employment figures next week will be closely watched, with Fed chairman Ben Bernanke putting greater emphasis on getting the jobless rate under 6.5 percent.

At the same time, the Reserve Bank governor Graeme Wheeler yesterday said he is prepared to keep intervening in currency markets to trim the peaks in the kiwi, and figures yesterday showed the bank sold a net $256 million in April.

"It's not a shock and awe tactic – you might see a little bit here and a little bit there, but no one knew about it until the Reserve Bank said it was intervening," says Michael Johnston, a senior trader at HiFX in Auckland.

He sees the kiwi falling to 78 US cents after it took a breather this week, edging down 0.1 percent.

Government figures today showed an improving terms of trade in the first three months of the year, rising 4.1 percent, ahead of economists' expectations of 0.9 percent.

New Zealand firms were also more upbeat this month, according to the ANZ Business Outlook, as the agriculture sector bounced back after the drought broke.

The kiwi was little changed at 83.77 Australian cents from 83.76 cents yesterday, largely unchanged on the week. A BusinessDesk survey on Monday was picking the local currency would gain against its transTasman counterpart this week as the economic fundamentals shift in New Zealand's favour.

The local currency slipped to 81.60 yen from 81.89 yen yesterday and declined to 61.96 euro cents from 62.59 cents. It slid to 53.05 British pence from 53.57 pence.

(BusinessDesk)