NZ dollar holds gains after surprise Chinese rate hike

Photo / Dean Purcell

The New Zealand dollar held its gains after a surprise hike in Chinese interest rates dimmed appetite for riskier, higher-yielding assets.

The People's Bank of China raised its one-year lending and deposit rates a quarter-point to 6.01 per cent and 3 per cent respectively as authorities in the world's most populous nation try to rein in inflationary pressures stemming from rising food prices.

ANZ New Zealand economists are betting the PBOC will hike its lending rate another three times to 6.81 per cent this year as China faces increased wage pressures.

Chinese markets resume activity today after celebrating Lunar New Year earlier this week.

"Why are they raising rates in China? Because the economy is going along quite strongly and are facing inflationary pressures,"
said Alex Sinton, senior dealer at ANZ New Zealand. Continued strong growth in China was "not a bad thing for Australasian currencies."

The kiwi was little changed at 77.52 U.S. cents from 77.51 cents yesterday, and recently traded at 68.82 on the trade-weighted index of major trading partners' currencies from 68.81.

It slipped to 63.71 yen from 63.77 yen yesterday, and fell to
76.22 Australian cents from 76.27 cents.

It declined to 56.81 euro cents from 56.86 cents yesterday, and gained to 48.21 pence from 48.02 pence.

Sinton said the currency may trade between 77.33 U.S. cents and
77.93 cents today with solid support in the low-77s, ahead of tomorrow's Australian employment data.

Though the market is expecting a small positive number, Sinton said the tropical cyclone and flooding across the Tasman increase the chance of a negative surprise.

Statistics New Zealand releases data today for spending on electronic cards last month, which is expected to show a continuing decline in consumer appetite.

Retailers struggled to achieve typical seasonal sales growth through the Christmas and New Year period, having to extend its discounts and squeeze margins further.