NZ dollar tumbles on rate hike

Photo / Dean Purcell

The New Zealand dollar tumbled against a rallying greenback after a surprise interest rate increase from 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.

Around 8am today the NZ dollar was buying US74.54c, down from US75.40c at 5pm yesterday.

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

Today, topside sellers may make getting back into the US75c territory difficult.

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 more than 2 percent to under US97c.

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.

The kiwi was up to A76.90c at 8am against the aussie from A76.41c at 5pm, fell to 60.72 yen from 61.35, and edged up to 0.5425 euro from 0.5416. The trade weighted index dropped to 66.66 at 8am from 66.86 at 5pm.

- NZPA