NZ dollar falls on Chinese bank write offs

The Kiwi dollar was the weakest performing G10 currency in the past 24 hours, according to Bank of New Zealand
The Kiwi dollar was the weakest performing G10 currency in the past 24 hours, according to Bank of New Zealand

The New Zealand dollar weakened as investors shun risk in favour of safe haven currencies amid concerns that Chinese banking woes could stymie growth in the world's second-largest economy.

The kiwi slipped to 83.43 US cents at 8am in Wellington, from 84.19 cents at the 5pm market close yesterday. The New Zealand dollar was the weakest performing G10 currency in the past 24 hours, according to Bank of New Zealand. The trade-weighted index declined to 76.65 from 77.29 yesterday.

Investors favoured so-called safe haven currencies such as the yen and the Swiss franc, and dumped the higher risk kiwi after a report this week that China's biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults. Chinese short-term money-market interest rates have spiked up amid reports that the Chinese government may be clamping down on Chinese bank lending.

"It seems to be of a bit of risk related sentiment, the Swiss franc and the Japanese yen appeared to be the two best performing currency over the last 24 to 48 hours, closely followed by the US dollar," said Peter Cavanaugh, client advisor at Bancorp Treasury Services.

"There's rumours that there have been substantial bank write offs (in China) in the first half of the year. Looking forward, people are now becoming concerned that it could be paving the way for even more write offs in the coming period," Cavanaugh said. "That's had a few people nervous. If you have a credit bubble it is going to create great damage to some of the key drivers of your economy like credit, business confidence and consumer confidence."

The People's Bank of China abstained from participating in scheduled open market operations for the third consecutive session on Thursday morning, resulting in previously issued maturing instruments draining 58 billion yuan from the country's interbank market, Reuters reported. Regulators have begun to suggest they might begin to tighten money supply to put a cap on rising domestic inflation and housing prices, Reuters said.

The New Zealand dollar touched a two-week low of 80.94 yen early this morning and was at 81.22 yen at 8am in Wellington from 81.90 yen yesterday. The kiwi touched a three-week low of 74.10 Swiss francs and was trading at 74.41 franc at 8am from 75.07 yesterday.

Sentiment is also weaker following the protracted US debt resolution, Bancorp's Cavanaugh said.

"It has left a sour taste in peoples' mouths," he said.

In the US tonight, reports are due on durable goods orders and consumer confidence.

The kiwi declined to 86.77 Australian cents from 87.23 cents yesterday. The local currency slipped to 60.44 euro cents from 61.05 cents yesterday and weakened to 51.47 British pence from 51.98 pence ahead of a report on third quarter UK GDP tonight.

- BusinessDesk

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