NZ dollar may test 77 US cts as Asian stocks sink amid Chinese liquidity concerns
By Paul McBeth
June 25 (BusinessDesk) - The New Zealand dollar may fall below 77 US cents in European and US trading after fears over China’s banking sector sparked a sell-off in Asian stock markets, and prompted investors to ditch risk-sensitive currencies.
The kiwi declined to 77.16 US cents at 5pm in Wellington from 77.55 cents at 8am and 77.47 cents yesterday. The trade-weighted index fell to 72.79 from 73.21 yesterday.
Stocks across Asia fell as investors digest the impact of the People’s Bank of China tightening of banking liquidity fuelled concerns a cash crunch will sap growth in the world’s second biggest economy. China’s Shanghai Composite Index fell 3.8 percent in afternoon trading, while Japan’s Nikkei 225 index was down 1.8 percent, and Hong Kong’s Hang Seng Index dropped 1.4 percent.
The New Zealand and Australian economies are closely linked with China’s fortunes, with both countries exporting large quantities into the world’s most populous nation.
“As long as the China jitters linger, the kiwi’s going to suffer more than most,” said Mike Jones, currency strategist at Bank of New Zealand in Wellington. “The kiwi’s still consolidating in the 77 to 78 US cents range, but looks likely to test the bottom of that tonight.”
The local currency has shed about 4.1 percent against the greenback since Federal Reserve chairman Ben Bernanke said last week the central bank may start tapering its $85 billion a month asset purchase programme this year if the economic data continues to improve.
Jones said the downtrend in the local currency probably isn’t enough to push it below 75 US cents, and any turnaround in US data may spark a rally towards 80 cents.
The kiwi slipped to 83.47 Australian cents from 84.08 cents yesterday and dropped to 75.23 yen from 76.21 yen. The local currency weakened to 58.83 euro cents from 59.11 cents and declined to 49.98 British pence from 50.39 pence.