NZ dollar rebounds from 6-year low as China intervenes to stabilise currency
By Tina Morrison
Aug. 13 (BusinessDesk) - The New Zealand dollar rebounded from a six-year low as China intervened in the market to
stabilise its currency, which had declined sharply following moves aimed at letting it trade more freely.
The kiwi advanced to 66.19 US cents at 8am in Wellington, from 64.86 cents at 5pm yesterday after it earlier touched a
low of 64.65 cents. Against the Chinese currency, known as the yuan or the renminbi, the kiwi rose to 4.2259 from 4.1689
yesterday. The trade-weighted index rose to 71 from 70.19 yesterday.
China's central bank intervened in the market to prop up its currency in the final moments of trading yesterday after it
slumped to a four-year low following a policy change to try and allow the currency to trade more in line with market
forces, the Wall Street Journal reported. The policy change, which came following weaker Chinese economic data at the
weekend, prompted speculation the central bank was attempting to devalue its currency to bolster exports, and making
other exporting nations such as New Zealand less competitive.
"It appears that the Chinese government stepped in on the currency close to the end of trading last night to prop up the
renminbi," said Peter Cavanaugh, client adviser at Bancorp Treasury Services. "It would be a signal that this is simply
a technical adjustment not a policy move. I think they misread the market response and were shocked with the severity of
the market response. If they were going to set today's rate at close to market close then they would have three days of
devaluation and risk going down a spiral.
"They are trying to make their currency more market driven as part of this whole process of freeing up the government
controls on the renminbi so that eventually the renminbi can take its place amongst the world's major trading and
reserve currencies. If they are the world's second-biggest economy, they want to have a freely trading currency that
reflects that."
The intervention to stabilise the Chinese currency saw the kiwi unwind earlier weakness, Cavanaugh said.
"A lot of the kiwi's fall was front-loading potential near-term falls in the renminbi. Because that renminbi situation
has been reversed, the kiwi has had to unwind a lot of that front-loading."
In New Zealand today, July data on food prices and manufacturing activity are scheduled for release.
The New Zealand dollar was little changed at 89.57 Australian cents from 89.59 cents yesterday, gained to 59.23 euro
cents from 58.57 cents, advanced to 42.36 British pence from 41.68 pence and rose to 82.16 yen from 81.19 yen.
(BusinessDesk)