NZ dollar headed for 1 per cent weekly fall as commodity prices decline

New Zealand Stock Markets

The New Zealand dollar was heading for a 1 per cent weekly decline in the face of weaker commodity prices. 

The kiwi dollar traded at 68.58 US cents as a 5pm in Wellington from 68.55 cents late yesterday and is down from 69.28 cents a week ago. The trade-weighted index was at 72.58 from 72.70.

The CRB Index of 19 commonly traded commodities has fallen more than 2 per cent in the past week, while prices of dairy products have declined in the past three GlobalDairyTrade auctions. Traders are watching for developments on US tax reforms, with progress potentially seen helping the US dollar.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said on the day the greenback pared some of its recent losses as Asian investors digested news the US House of Representatives approved the package of tax cuts and shifted the tax debate to the Senate.

Kelleher noted, however, the reaction was fairly muted. "I think that was just part of the journey... and until we actually see it physically done then no one knows what's going on," he said.

Kelleher said with little data on the immediate horizon the kiwi is likely to stick to a tight range but said there is key support at around 68.20 that would open up further downside if it were to break.

The kiwi traded at 90.32 Australian cents from 90.24 cents yesterday. It traded at 51.81 British pence from 52.04 pence and at 58.04 euro cents from 58.20 cents. It was at 4.5435 yuan from 4.5497 yuan and traded at 77.12 yen from 77.45 yen.

New Zealand's two-year swap rate fell 1 basis point to 2.15 per cent while 10-year swaps fell 2 basis point to 3.12 per cent.

BNZ senior markets strategist Jason Wong said the 2-year swaps stand a good chance of reaching a fresh low for the year, down towards 2.10 per cent as "domestic liquidity is gushing."

According to Wong, a softer market for existing houses, loan-to-value restrictions, and uncertainty around the election have seen softer credit growth. In the absence of credit growth picking up, banks will remain well-funded and will be looking for a home to park cash, keeping downward pressure on short-term rates.