NZ dollar extends slide on US budget impasse, view on local rates

The New Zealand dollar extended its slide as the US government shutdown and looming debt ceiling deadline sapped investors' risk appetite and demand for growth-linked currencies such as the kiwi.

The local dollar fell to 82.24 US cents at 5pm in Wellington, from 82.66 US cents at the start of the day and 83.05 cents yesterday. The trade-weighted index dropped to 76.45 from 76.81 this morning and from 77.32 yesterday.

The US was forced to shut down some US government services for the first time in 17 years after Republicans and Democrats failed to agree on the federal budget, raising concerns about whether politicians can reach agreement on increasing the country's debt ceiling this month to enable the US to meet its financial obligations. The shutdown may mean non-farm payrolls data isn't released this week.

Politicians must agree by mid-October to raise the country's US$16.7 trillion debt ceiling or risk an historic US default.

"It all adds up to a bit of risk off," said Tim Kelleher, head of institutional FX sales at ASB. "The currency looks like a sell above 83 cents."

Traders were also anticipating a speech by Reserve Bank Assistant Governor John McDermott about neutral interest rates amid talk the bank may not have to hike the official cash rate as far now that it has imposed curbs on high loan-to-value mortgages.

"Lower neutral interest rates imply that the interest rates faced by household and businesses over the longer haul are likely to be lower than in the past," McDermott said. "But interest rates will still need to be adjusted in response to the state of the economy."

He said a nominal 90-day interest rate of about 4.5 percent may represent a neutral level and achieve the projected 2 percent inflation by March 2016.

The speech was less dovish than some in the market had expected, Kelleher said.

The kiwi didn't move much after dairy prices rose in the latest GlobalDairyTrade auction overnight or after figures showed the ANZ Commodity Price Index rose 0.9 percent in September, the third straight monthly gain.

The New Zealand dollar fell to 87.76 Australian cents from 88.03 cents at the start of the day and 89 cents yesterday when the Reserve Bank of Australia kept interest rates unchanged yesterday and gave no indications of an easing bias, surprising some investors.

The kiwi dropped to 80.35 yen from 80.88 yen this morning and 81.64 yen yesterday. The local currency fell to 50.84 British pence from 51.03 British pence at the start of the day and 51.12 pence yesterday and declined to 60.81 euro cents from 61.09 cents in the morning and 61.36 cents yesterday.

(BusinessDesk)