Dollar drops as investors sell high-yielding currencies

The New Zealand dollar fell as investors sell higher-yielding currencies in anticipation of interest rate hikes in the US.

The kiwi dropped to 63.33USc at 8am in Wellington, from 64.23USc at 5pm yesterday. The trade-weighted index declined to 68.65 from 69.50 yesterday.

Investors are selling currencies such as the kiwi as they unwind so called 'carry trades' where they sell a lower-yielding currency to buy riskier, higher-yielding ones for better returns. The US dollar strengthened as traders position themselves for a potential interest rate hike in the US next month.

"Certainly, at the moment the higher yielders are being sold and the low yielders are being bought," said OMF senior dealer, foreign exchange, Stuart Ive. "That's just the unwinding of the carry trade as the market increasingly expects the US to raise rates in the near future. Investors are repositioning themselves waiting for that to take place."

In New Zealand this morning, Quotable Value publishes its August data on property values and Statistics NZ releases second-quarter terms of trade.

This afternoon, traders will be eyeing Chinese manufacturing and non-manufacturing purchasing managers' index data amid concerns about the extent of a slowdown in Asia's largest economy.

Tonight, the focus will be on the latest fortnightly GlobalDairyTrade auction, a closely watched indicator for dairy products, New Zealand's largest commodity export. The GDT average winning price climbed 14.8% at the previous auction two weeks ago, the first gain in nearly six months.

OMF's Mr Ive expects the average price will increase 7% at tonight's auction, which he says may underpin the local currency.

The New Zealand dollar slipped to 88.97Ac from 89.84Ac yesterday ahead of the Reserve Bank of Australia's decision on interest rates today, where no change is expected.

The local currency slipped to 56.42 euro cents from 57.07 cents yesterday, fell to ¥76.76 from ¥77.76, weakened to 4.0379 yuan from 4.0961 yuan and declined to 41.26 British pence from 41.62p.

(BusinessDesk)