The New Zealand dollar rose to a new three-month high as reports China may cut its purchases of new US government bonds weighed on Wall Street and the greenback.
The kiwi rose as high as 72.28 US cents and traded at 71.90 cents as at 8am in Wellington from 71.64 cents yesterday. The trade-weighted index advanced to 74.82 from 74.66 yesterday.
Stocks on Wall Street and the greenback fell while US Treasuries were also sold off, pushing yields higher, on media reports citing unnamed sources that Chinese officials reviewing the Asian nation's foreign-exchange holdings recommended slowing or completely halting purchases of US Treasuries. China is the biggest foreign holder of US government debt with US$1.19 trillion of Treasuries as of October last year, and has been placed under increased pressure from US President Donald Trump over the nations' trading relationship.
"With trade tensions suggested as one of the reasons for China to hold less US debt overnight, currency moves in 2018 won't solely be about where the best returns are on offer," ANZ Bank New Zealand rural economist Con Williams said in a note. The Kiwi dollar "tested topside resistance overnight, but has the feeling that a better run of domestic data over the next week could see this broken."
The Kiwi rose to 4.6775 Chinese yuan from 4.6713 yuan yesterday after the report. However, Bank of New Zealand interest rate strategist Nick Smyth warned against reading too much into the reports, given the size of the US bond market meant it was hard for a buyer of China's size to ignore and that until the yuan is freely floated, intervention to limit the Chinese currency's appreciation would stoke demand for the greenback.
