Dollar declines as investors exit higher risk trades

The New Zealand dollar fell after weak Chinese factory data raised concerns about a slowdown in Asia's largest economy.

The kiwi dropped to 63.31USc at 8am in Wellington, from 63.74c at 5pm yesterday. The trade-weighted index slipped to 68.70 from 68.91 yesterday.

Investors sold higher-risk currencies such as the kiwi in favour of the safe-haven yen and Swiss franc after a report showed China's manufacturing sector contracted at its fastest pace in three years during August, stoking concerns about global growth.

Stocks on major markets tumbled along with commodity prices. The International Monetary Fund cut its forecast for world growth this year, due to a slower recovery in advanced economies and a further slowdown in emerging nations.

"Weakness in Asian equities and soft Chinese data saw a waning of risk appetite," ANZ Bank New Zealand senior economist Mark Smith and economist Dylan Eades say.

"Heightened financial market volatility due to weakness in the Asian region will continue to provide a negative backdrop for the New Zealand dollar."

Dairy product prices rose 10.9% in the GlobalDairyTrade auction overnight, taking the gain over the past two events to 23% after nearly six months of declines.

Still, the $US2078 whole milk powder price is below the $US2200 level needed to achieve Fonterra’s 2015/16 $3.85 per kilogram of milk solids forecast payout to farmers. The auction provided only a "modicum" of support for the kiwi, ANZ says.

The bank expects the kiwi to trade between 63USc and 63.90c today. ANZ publishes its Commodity Price Index at 1pm.

The New Zealand dollar advanced to 90.13Ac from 89.41c yesterday after the Reserve Bank of Australia kept its benchmark interest rate unchanged. Today, Australian second-quarter GDP data is due out.

The local currency fell to 56.04euro c from 56.56c yesterday as investors favoured the lower yielding euro over high yielding currencies like the kiwi in times of risk aversion. It edged lower to 41.36 British pence from 41.40 pence yesterday.

The kiwi dropped to 75.79 yen from 76.97 yen, and declined to 60.78 Swiss franc from 61.29 franc. It slipped to 4.0284 yuan from 4.0585 yuan yesterday.

(BusinessDesk)