NZ dollar heads for 2.1% weekly fall as focus switches to China’s banks

The New Zealand dollar is heading for a 2.1 percent weekly decline against the greenback as concerns about the strength of China's banking system fuelled fears global growth will be undermined by a slowing economy in the world's most populous nation.

The kiwi fell to 83.21 US cents at 5pm in Wellington from 84.98 cents at the start of the week, and was down from 83.43 cents at 8am and 84.19 cents yesterday. The trade-weighted index dropped to 76.42 from 77.29 yesterday, and is heading for a 2.1 percent weekly decline from 78.04 at the Monday open.

A BusinessDesk survey of 10 traders and strategists on Monday predicted the local currency would trade between 83.50 US cents and 86.20 cents this week. Seven expected the currency to advance while two said it would be unchanged and one tipped to fall.

Investors bailed on riskier assets, such as the trans-Tasman currencies, amid reports this week that China's biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults. Chinese short-term money-market interest rates spiked higher on news the Chinese government may be clamping down on bank lending.

"The Chinese news earlier in the week gave markets a reason to take a bit of profit," said Dan Bell, head of corporate sales at HiFX in Auckland. "Since then there hasn't been any support for both the kiwi and Aussie, which are well and truly struggling versus the greenback."

New Zealand's Reserve Bank governor Graeme Wheeler today said in an interview with Radio New Zealand he hadn't seen any opportunity to intervene in currency markets to take the heat out of what's seen as an over-valued currency. Earlier this year, the central bank intervened in currency markets, selling a net $256 million in April to trim the peak in the kiwi.

Wheeler is expected to keep the official cash rate at a record-low 2.5 percent when he reviews monetary policy next week, according to a Reuters survey. Restrictions on low-equity mortgage lending are thought to have started cooling the housing market, and Wheeler is reluctant to raise rates aggressively while the currency remains strong.

Traders are keeping an eye on US data as it gets released after delays caused by the partial shutdown of the Federal government. The shutdown is expected to have delayed the Federal Reserve's planned tapering of its US$85 billion a month asset purchase programme.

The local currency fell to 86.57 Australian cents at 5pm in Wellington from 87.23 cents yesterday and dropped to 80.91 yen from 81.90 yen. The kiwi declined to 60.22 euro cents from 61.05 cents yesterday and decreased to 51.24 British pence from 51.98 pence.

(BusinessDesk)