WELLINGTON: The New Zealand dollar has risen to a six-and-a-half week high against its trans-Tasman counterpart after a slump in Chinese equities markets weighed more heavily on the Australian dollar.
The kiwi rose as high as 90.91 Australian cents, and was trading at A90.71c at 8am on Tuesday in Wellington from A90.36c on Monday.
It gained to US66.06 cents from US65.88c.
The Chicago Options Board Exchange’s Volatility Index, known as Wall Street’s “fear gauge”, rose to a two-week high as stocks fell on Wall Street and in Europe after an 8.5 per cent slump in China’s Shanghai Composite index.
The prospect of a slowing Chinese economy is weighing on exporters such as Australia and New Zealand, which rely on the world’s second biggest economy buying their raw materials, and prices for iron ore, Australia’s biggest commodity export, have been under pressure over the past week.
“Chinese stocks plunged and took other stocks with them around the world,” said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. Should the kiwi hold its gains against the Aussie, “then it signals further gains in the days ahead”.
Traders are awaiting Reserve Bank governor Graeme Wheeler’s speech on the outlook for New Zealand’s economy on Wednesday, where he’s expected to provide more guidance to the market after the currency gained following last week’s rate cut.
The market is pricing in 42 basis points of interest rate cuts to the 3 per cent official cash rate over the coming 12 months, according to the Overnight Index Swap curve.
On Tuesday morning, the kiwi was little changed at 81.36 yen from 81.34 yen on Monday, and fell to 59.49 euro cents from 59.85 cents. The currency was almost unchanged at 42.45 British pence, from 42.42 pence.
The trade-weighted index inched up to 70.30 from 70.22.
