The New Zealand dollar weakened as investors shun risk in favour of safe haven currencies amid concerns that Chinese banking woes could stymie growth in the world's second-largest economy.
The kiwi slipped to 83.43 US cents at 8am in Wellington, from 84.19 cents at the 5pm market close yesterday. The New Zealand dollar was the weakest performing G10 currency in the past 24 hours, according to Bank of New Zealand. The trade-weighted index declined to 76.65 from 77.29 yesterday.
Investors favoured so-called safe haven currencies such as the yen and the Swiss franc, and dumped the higher risk kiwi after a report 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 have spiked up amid reports that the Chinese government may be clamping down on Chinese bank lending.
"It seems to be of a bit of risk related sentiment, the Swiss franc and the Japanese yen appeared to be the two best performing currency over the last 24 to 48 hours, closely followed by the US dollar," said Peter Cavanaugh, client advisor at Bancorp Treasury Services.
"There's rumours that there have been substantial bank write offs (in China) in the first half of the year. Looking forward, people are now becoming concerned that it could be paving the way for even more write offs in the coming period," Cavanaugh said. "That's had a few people nervous. If you have a credit bubble it is going to create great damage to some of the key drivers of your economy like credit, business confidence and consumer confidence."
