NZ dollar tumbles on Chinese move

The New Zealand dollar fell today after a surprise interest rate increase in China prompted investors to cut risk exposure.

Investors feared a quarter percentage point rise in China's one-year lending rate could dampen Chinese and global growth and slow the country's demand for commodities.

The NZ dollar was at US74.56c at 5pm, little changed from US74.54c at 8am but it had fallen over night from US75.40c at 5pm yesterday after the Chinese move sparked concern that the buoyant Chinese economy may be embarking on a tightening cycle.

ANZ bank said the surprise rise in Chinese interest rates had seen risk quickly removed from the table, driving down the NZ dollar, Australian dollar and euro.

A 2.5 per cent fall in globalDairyTrade trade weighted dairy prices was largely ignored, as the euro and aussie lifted from their lows, ANZ said.

For the market, the Chinese action was seen as negative for growth and therefore, for commodities. That saw commodity currencies being sold, with the aussie coming in for particular attention, ANZ said.

The Australian dollar, which last week rose above parity with its US counterpart for the first time since 1983, slipped to be US97.43c at 5pm.

ANZ said its China economists had been expecting a rate hike, which they believed reflected authorities' confidence in China's macroeconomic performance, more determination to use interest rate tools to contain rising inflation and inflation expectations, and that authorities had started to pay attention to concerns about asset bubbles fuelled by negative real interest rates.

BNZ said the NZ dollar was looking over-stretched anyway after flirting with the 27 month high around US76.50c earlier this month.

It said the NZ dollar's relative yield advantage has increased this month, bolstering the currency's appeal but long positions held by speculative traders are around double the long run average.

"The sliding US dollar has plunged against just about every major currency, albeit with last night's surprise Chinese rate hike providing some respite," BNZ said.

The NZ dollar rose to A76.45c at 5pm from A76.41c at the same time yesterday. It fell to 60.64 yen from 61.35, and was at 0.5411 euro from 0.5416. The trade weighted index dropped to 66.55 at 5pm from 66.86 at 5pm.

- NZPA