NZ dollar heads for 2.8% slide vs greenback as Wheeler talks down kiwi, dairy payout cut
By Paul McBeth
Sept. 26 (BusinessDesk) - The New Zealand dollar is heading for a 2.8 percent slide against the greenback this week
after Reserve Bank governor Graeme Wheeler jawboned down the kiwi and Fonterra Cooperative Group cut its forecast payout
to farmers, as global investors start eyeing higher interest rates in the US.
The kiwi fell to 78.98 US cents at 5pm in Wellington from 81.24 cents on Friday in New York last week. It traded at
79.08 cents at 8am and 79.92 cents yesterday. The trade-weighted index fell to 76.83 from 77.60 yesterday, and is
heading for a 2.2 percent weekly drop.
A BusinessDesk survey of 10 currency traders and strategists on Monday predicted the kiwi would trade between 80.50 US
cents and 82.50 cents this week. Three picked the local currency to decline, four expected a gain and three said it
would remain relatively unchanged.
The RBNZ's Wheeler surprised markets yesterday when he released a statement reiterating comments that the New Zealand
dollar should be lower given weaker commodity prices, and that its "unsustainable and unjustified" strength were
“important considerations in assessing whether exchange rate intervention is feasible.”
His comments came a day after Fonterra cut its forecast payout to farmers, and ahead of central bank figures on Monday
which will show whether the RBNZ was active in currency markets during August, a month when traders speculated there had
been intervention.
"He's said similar sentiments previously, and said it again yesterday, though it was unexpected and certainly markets
fell pretty hard and fast," said Michael Johnston, senior trader at HiFX in Auckland. "That highlights the vulnerability
of the kiwi to the downside."
HiFX's Johnston said the local currency is probably due for a small correction, but any gains will be short-lived, and
"there's a bit of a view it's heading back towards pre-GFC (global financial crisis) levels."
The local currency has dropped from a peak 88.35 US cents on July 10 as global markets anticipate the US Federal Reserve
will start hiking interest rates earlier than expected, and as local commodity prices of logs and dairy come off,
eroding returns for two of New Zealand’s biggest exports. Traders will be watching US employment figures next week to
gauge the strength of the world's biggest economy.
Commodity-linked currencies such as the kiwi, Australian and Canadian dollars have also been on the decline this week
amid fears China’s economy may be faltering, and the Wall Street Journal yesterday reported the ruling Communist Party
may be looking to replace Zhou Xiachan as the governor of the People’s Bank of China.
The kiwi fell to 90.17 Australian cents at 5pm in Wellington from 90.58 cents yesterday, and dropped to 86.08 yen from
87.21 yen. It declined to 61.94 euro cents from 62.60 cents, and decreased to 48.42 British pence from 48.97 pence
yesterday.
(BusinessDesk)