Kiwi drops sharply after China devalues yuan

The New Zealand dollar has fallen 15% against the greenback so far this year, reflecting weaker economic growth, falling dairy prices, lower interest rates and a pick up in the US. Photo / NZME.

The New Zealand dollar dropped sharply after China's central bank devalued the yuan following recent poor economic data, which will help exporters in Asia's largest economy.

The kiwi dropped as low as 65.50 US cents, from 66.27 cents at 1pm, and was recently trading at 65.60 cents.

The kiwi rose against the yuan following the statement. It was recently trading at 4.1341 yuan from 4.1150 yuan at 1pm.

The yuan fell to its lowest point in almost three years after the People's Bank of China said it had changed the way it calculated the currency's daily midpoint against the US dollar.

China manages the exchange rate through an official midpoint, from which trade can rise or fall 2 per cent on any given day.

The central bank said it would now base the yuan's midpoint on market makers' quotes and the previous day's closing price.

The move comes after weaker Chinese trade and manufacturing data was released at the weekend, raising concern about an economic slowdown.

"They are trying to bolster their economy and the easiest way of doing it is by making it better for their exporters and make themselves more competitive again globally," said Tim Kelleher, head of institutional FX sales New Zealand at ASB Bank.

"It's more monetary easing in Asia, theoretically it will decrease our competitiveness as well." Kelleher said.

"If all the countries are easing their monetary policy then it puts further pressure on the RBNZ to ease as well.

"The New Zealand dollar increased against the Australian dollar, reflecting the Australian economy's bigger exposure to China, Kelleher said.

The kiwi was recently trading at 89.44 Australian cents, from 89.13 cents at 1pm.