Kiwi Declines as Key Says Currency ‘Overvalued’; Aussie Drops

The New Zealand dollar declined after Prime Minister John Key said it’s still “overvalued” and the government would welcome a drop in the currency.

The kiwi weakened versus most of its 16 major counterparts, paring a monthly gain that’s the biggest among its peers, after Key’s comments. The Australian dollar fell, snapping a two-week advance, as Asian stocks extended losses and damped demand for higher-yielding assets.

“When you have comments like that coming from the prime minister, you can expect some kind of reaction in the currency markets,” said Khoon Goh, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “We won’t be surprised if this pullback proves temporary, as we’ve seen in many cases in the past.”

New Zealand’s currency lost 0.2 percent to 80.71 U.S. cents as of 5:13 p.m. in Sydney, paring its gain this month to 4.3 percent. The Australian dollar dropped 0.1 percent to 92.46 U.S. cents after climbing 2.3 percent in the two weeks through July 26. It has advanced 1.2 percent since June 30.

The MSCI Asia Pacific Index of shares fell 1.6 percent.

“We are likely to see a depreciation of the New Zealand dollar against the U.S. dollar, and that’s welcomed because the government’s view is that foreign-exchange rate is still overvalued,” Key said today in Seoul.

Australia’s 10-year government bond yield fell four basis points, or 0.04 percentage point, to 3.74 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates that is sensitive to interest-rate expectations, dropped two basis points to 3.34 percent.