NZ dollar falls as China tightens lending, eyes inflation

NZ dollar falls as China tightens lending requirements amid inflation fears

By Paul McBeth

Jan. 17 (BusinessDesk) – The New Zealand dollar fell as China tightened its lending requirements for the fourth time in two months amid rising inflation fears in the world’s second-biggest economy.

The People’s Bank of China raised the reserve requirement ratio for lenders 50 basis points to a record 19.5%, effective from Jan. 20, as the nation tries to rein in liquidity and damp rising prices. That came after weak retail sales figures in the U.S. stoked investors’ appetite for higher-yielding, or riskier, assets, taking the kiwi dollar up to near 77 U.S. cents. Stocks on Wall Street climbed on Friday with the Standard & Poor’s 500 Index up 0.7% as investment bank JP Morgan posted a record fourth-quarter profit.

The Chinese rate hike “took the steam out of risk appetite and knocked sentiment in equity markets,” said Mike Jones, strategist at Bank of New Zealand. “In a fairly subdued night, the kiwi dribbled a little lower.”

The kiwi fell to 76.58 U.S. cents from 76.93 cents on Friday in New York, and slipped to 68.91 on the trade-weighted index of major trading partners’ currencies from 69. It was unchanged at 63.45 yen and rose to 77.31 Australian cents from 76.99 cents last week. It declined to 57.20 euro cents from 57.51 cents last week, and dropped to 48.23 pence from 48.49 pence.

Jones said the currency may trade between 76.40 U.S. cents and 77 cents today, with the Real Estate Institute of New Zealand housing data expected to show more weakness in the property market. December’s food price index is also likely to be watched ahead of consumer price index on Thursday.

With European sovereign debt likely to lead currency markets this year, investors are closely watching a meeting of the region’s finance ministers which kicks off today. Last week was the euro’s strongest since May 2009, with currency climbing 3.7%. It recently traded at 1.3375 per U.S. dollar, from 1.3357 on Friday in New York.

(BusinessDesk)

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