Dollar down as oil declines on bets oversupply could continue

The local currency followed investor sentiment as it ebbed and flowed with Chinese markets re-opening after the Lunar New Year holiday last week. Photo / iStock

The New Zealand dollar fell after oil weakened on concern that an oversupply may continue, driving investors away from currencies linked to commodities.

The kiwi dropped to 66.70 US cents at 8am in Wellington, from 66.98 cents at 5pm yesterday. The trade-weighted index declined to 72.49 from 72.71 yesterday.

Investors shied away from growth assets such as equities and currencies of commodity producing countries after Saudi Arabia's oil minister Ali al-Naimi said the country won't cut output and Iranian oil minister Bijan Namdar Zanganeh called last week's agreement between Saudi Arabia and Russia to freeze oil production at January levels "ridiculous," stoking concerns an oversupply won't reverse any time soon.

That dashed hopes that oil prices may be headed for a recovery, which would bolster the outlook for inflation and interest rates.

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"Market sentiment softened overnight," ANZ Bank New Zealand agri economist Con Williams and senior foreign exchange strategist Sam Tuck said in a note.

"In the oil market it continues to be political ping pong between many of the large 'traditional' producers on whether or not they have the will to work together to cap supply. We place a very low probability on this being the case, as evidenced by last night's scuttlebutt."

ANZ expects the kiwi to continue to follow global sentiment, noting it will probably trade between 66.30 US cents and 67.30 cents today.

Traders will be eyeing upcoming speeches by Federal Reserve vice chair Stanley Fischer, Richmond Fed president Jeffrey Lacker and Dallas Fed president Robert Kaplan for an indication of the US interest rate outlook. The US also publishes the Markit services PMI and new home sales.

In Australia, data on employment and construction are scheduled for release.

The New Zealand dollar fell to 74.73 yen from 75.08 yen yesterday, dropped to 4.3530 yuan from 4.3726 yuan, slipped to 60.53 euro cents from 60.64 and declined to 92.43 Australian cents from 92.71 cents. It gained to 47.56 British pence from 47.46 pence