NZ dollar falls as investors grab stocks

Photo / Dean Purcell

The New Zealand dollar fell against all major currencies last night as investors returned to stock markets with gusto and largely ignored trading in the kiwi.

The currency recently traded at 83.21 US cents, down from 83.62 cents yesterday, and fell to 71.31 on the trade-weighted index of major trading partners' currencies from 72.09 previously.

Investor sentiment received a clear risk-on signal yesterday after official figures from Japan showed growth contracted 0.3 per cent in the second quarter, beating expectations and suggesting the world's third-biggest economy was recovering faster than previously thought from the March earthquake and tsunami.

The Australian dollar climbed to US$1.0503 from US$1.0413 yesterday, its highest level since before the recent global equity rout. The rush into the Australian currency put pressure on the New Zealand dollar, with the light volume of kiwi dollar trading meaning it underperformed on the cross-rates.

"A lack of liquidity in the kiwi means you can get these strange moves sometimes," said Mike Burrowes, a market strategist with Bank of New Zealand. "Investors moved strongly into Australian dollar, which has a lot more liquidity that we do, and sometimes those positions can be quite large. That's not a problem for them but it is a problem for the kiwi."

On the crosses, the New Zealand dollar recently traded at 79.20 Australian cents, down from 80.23 cents yesterday, and fell to 63.91 Japanese yen from 64.24 yen previously. It dropped to 57.59 euro cents from 58.48 cents yesterday, and declined to 50.77 pence from 51.32 pence.

The Reserve Bank of Australia is scheduled to release the minutes from its August meeting today, and the market will look for hints on when the central bank is likely to cut interest rates. Already, 129 basis points of cuts are priced in over the next 12-months according to the Overnight Index Swap curve.

"You can't imagine that there will be too much talk about them cutting rates given such a huge move in the cross overnight," Burrowes said.

The kiwi may trade between a range of 82.80 US cents and 83.90 cents, he said.