Kiwi Poised for Longest Weekly Decline Against Aussie Since 2012Masaki Kondo
New Zealand’s dollar was set for the longest run of weekly declines against its Australian counterpart in more than a year as the smaller nation’s central bank signaled hesitation to raise borrowing costs.
The kiwi slid against all 16 major peers after Reserve Bank of New Zealand Governor Graeme Wheeler said he is concerned higher interest rates would drive up the currency and damage exports. Two-year interest-rate swaps in the nation fell for a seventh day, the longest stretch in almost two years. The Aussie was poised to complete its first weekly decline this month versus the U.S. currency.
“I expect to see Aussie-kiwi rise a bit more,” said Kengo Suzuki, the chief currency strategist at Mizuho Securities Co. in Tokyo. “There’s a good chance that New Zealand will put off raising rates to avoid a stronger currency, and any indication of delay will cap a gain in the kiwi.”
The kiwi retreated 0.3 percent to NZ$1.1540 per Aussie as of 4:52 p.m. in Sydney, extending its weekly slide to 1.4 percent. A fifth week of declines would be the longest stretch since May 2012. The currency weakened 0.4 percent to 83.23 U.S. cents after touching 82.98, the lowest since Oct. 14. The Australian dollar fell 0.2 percent to 96.05 U.S. cents, a 0.8 percent retreat since Oct. 18.
The MSCI Asia Pacific Index of shares lost 0.8 percent, sapping demand for higher-yielding assets.
The yield on Australia’s benchmark 10-year yield dropped two basis points, or 0.02 percentage point, to 3.97 percent. It has fallen 15 basis points this week.
New Zealand’s two-year interest-rate swaps retreated seven basis points to 3.41 percent. There hasn’t been a longer period of declines for the contracts since November 2011.
The kiwi is about 10 percent stronger than its five-year average against a basket of nine major currencies tracked by the Bloomberg Correlation-Weighted Indexes.
“We have a very strong exchange rate,” Wheeler said in an interview with Radio New Zealand. Increasing interest rates “would put upward pressure on the exchange rate and damage our traded goods sector. We’re quite concerned about that risk.”
The RBNZ set the official cash rate at an all-time low of 2.5 percent, which is still the highest along with Australia among Group of 10 countries. Traders see a 65 percent chance that the central bank will raise the rate by the end of April, compared with a 34 percent likelihood that the Reserve Bank of Australia will decrease borrowing costs by that month, according to data compiled by Bloomberg on overnight-index swaps.
The RBNZ, scheduled to hold a policy meeting on Oct. 31, said last month that rate increases “will likely be required next year” because of inflation pressures.
House-price inflation is running at the fastest pace since early 2008, fueled by a housing shortage in Auckland and Christchurch. The RBNZ on Oct. 1 introduced limits on the volume of home loans banks can make when deposits are less than 20 percent of a property’s value. Asked if the restrictions are working, Wheeler said today it is too early to tell “but the anecdotes suggest that they are.”
Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington, said the kiwi was weaker today on Wheeler’s comment that the mortgage lending curbs may be starting to work.
“That may reduce the need for rate hikes down the track,” Jones said. “It’s seeing the ground crumble under the kiwi a little bit.”