NZ dollar falls with Aussie as China downgrade mulled

NZ dollar falls with Aussie as Moody's China downgrade mulled, commodities weaken

By Jonathan Underhill

May 26 (BusinessDesk) - The New Zealand dollar fell along with the Australian dollar after officials at Moody's Investors Service officials said China could face another credit rating downgrade if it doesn't contain its debt mountain, while both currencies were hurt by falling commodity prices.

The kiwi declined to 70.14 US cents as at 5pm in Wellington from 70.41 cents late yesterday and is up about 1.3 percent from a week ago. The trade-weighted index was little changed at 75.87 from 75.98 yesterday.

Moody's official Li Xiujun said in a webcast that China may not be able to hold onto its A1 credit rating if the nation's debt grows at a faster pace than the ratings agency anticipates. The webcast follows Moody's decision this week to cut China's rating to A1 from Aa3, earning a rebuke from the world's second-largest economy, with the finance ministry describing Moody's as "sloppy" and its move based on inappropriate methodology. The Australian dollar fell more than the kiwi on the news, on the basis that it is more exposed to changes in China's fortunes and demand for its iron ore and coking coal.

"The Australian dollar is leading the charge but we're somewhat linked to the Chinese economy as well," said Mitchell McIntyre, a dealer at HiFX. "Combine that with the fact that commodities were hit overnight - oil and then iron ore - and commodity currencies have been dragged down."

The kiwi rose to 94.39 Australian cents from 93.84 cents yesterday and fell to 4.8060 yuan from 4.8373 yuan.

Crude oil dropped after the Organisation of Petroleum Exporting Countries agreed to extend production curbs that didn't go as far as the market had expected, driving down the price of crude oil and weighing on commodity-linked currencies. Opec and producers such as Russia agreed overnight to extend curbs on oil output of 1.8 million barrels a day to the end of March 2018, less than some oil traders had deemed enough to alleviate a glut of crude oil.

Still, McIntyre said he believed the "uptrend is still intact" for the kiwi, provided it holds above 70 US cents.

The kiwi was little changed at 62.60 euro cents and rose to 54.40 British pence from 54.21 pence. The local currency fell to 78.23 yen from 78.56 yen.

New Zealand's two-year swap rate decreased 1 basis point to 2.21 percent and 10-year swaps fell 4 basis points to 3.19 percent.

(BusinessDesk)

© Scoop Media