NZ dollar falls to 3-week low as equities slide, Swiss franc tumbles
Sept. 7 (BusinessDesk) - The New Zealand dollar fell against the greenback after equity markets weakened and the Swiss National Bank set a ceiling for the franc, driving down a currency that has been a ‘safe-haven’ beneficiary amid global economic turmoil.
The New Zealand dollar recently traded at 82.17 U.S. cents, down from 82.88 U.S. cents yesterday, having traded as high as 83.67 cents overnight. The New Zealand dollar dropped below 83 U.S. cents yesterday for the first time in almost two weeks after the Reserve Bank of Australia kept it benchmark rate on hold.
On the trade-weighted-index the New Zealand dollar fell to 71.42 from 71.67 yesterday.
Given the size of the fall the New Zealand dollar is expected to find support today at lower levels, said Alex Sinton, senior dealer at Australia & New Zealand Banking Group. Support is expected initially at 81.80 U.S. cents and resistance is expected at 82.50 cents, he said.
The focus today will be on the Australian gross domestic product report for the three months to June 30. Economists expect a 0.9% rise, according to a Reuters survey from a contraction of 1.2% in the first quarter.
The Swiss franc tumbled as much as 10.7% against the euro after the central bank said it would defend its currency against over-valuation with the “utmost determination.”
Sinton said the franc had been treated as a safe haven currency. "The SNB doesn’t believe it should be that strong. They are trying to draw a line in the sand," he said.
The New Zealand dollar spiked as high as 83.80 U.S. dollars after the shock SNB move and then declined. Risk appetite was affected by equity market trends. After the US holiday on Monday the Standard & Poor’s 500 Index was down 0.7% in late afternoon trading.
New Zealand dollar had not reacted greatly to the latest auction of milk powder by Fonterra overnight. There has been a minor "back off" in prices in the auction, Sinton said.
Average prices of dairy products fell for the sixth straight sale auction, reaching the lowest level in 10 months. The GDT-TWI Price Index fell 1.4% to US$3,580 a metric tonne, according to results posted on the globalDairyTrade auction website. Whole milk powder fell to its lowest level since August last year.
On the crosses, the kiwi recently traded at 78.32 Australian cents, down from 78.81 Australian cents yesterday, and fell to 63.80 Japanese yen from 63.64 yen yesterday. It dropped to 58.70 euro cents from 58.93 cents yesterday, and slipped to 51.51 pence 51.50 pence previously.
Reserve Bank of Australia Governor Glenn Stevens kept the target cash rate on hold at 4.75%, saying the bank will continue to watch offshore volatility, and that medium-term inflation is becoming a concern. Stevens said “the outlook for the global economy is less clear than it was earlier in the year.”