Dollar heads for 1.8% weekly decline as Greek referendum looms

The New Zealand dollar is heading for a 1.8% weekly decline as financial markets remain volatile ahead of Greece's referendum on whether to accept a bailout package from its European creditors and as the wheels start coming off the local economy.

The kiwi dropped to 67.18USc at 5pm in Wellington from 68.42USc on Friday in New York last week. It was little changed from 67.26USc at 8am and 67.03USc cents yesterday. The trade-weighted index rose to 70.57 from 70.31 yesterday, and is heading for a 1.8% weekly decline.

A BusinessDesk survey of 13 currency advisers on Monday predicted the kiwi would trade between 66USc and 70.50USc this week. Eight expected the currency to decline, three picked a gain and two said it would remain largely unchanged.

The kiwi has been caught in a global sell-off of risk-sensitive assets after Greece's policymakers fell into arrears with an International Monetary Fund loan after pledging to put any bailout package to its populace. A referendum will be held on Sunday, and Greece's ruling Syriza party has been lobbying the public to vote against accepting the proposals.

Souring business confidence and plunging global milk prices have compounded the New Zealand currency's decline, and Westpac New Zealand today joined ASB Bank and Deutsche Bank NZ in predicting the Reserve Bank will cut the official cash rate by another 75 basis points to 2.5% by the end of the year. Traders are pricing in 59 basis points of cuts over the next 12 months, according to the Overnight Index Swap curve.

"It's a big weekend with the Greek referendum, and the results are out pre-market Monday," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "There is still another two to three cents on the downside [for the kiwi] on a relatively conservative view."

The kiwi climbed to 88.50Ac from 87.60Ac yesterday after government data showed retail sales growth across the Tasman lagged expectations, and after Chinese PMI services index showed activity slowed to a five-month low, stoking concerns about Australia and New Zealand's major trading partner. The local currency gained to 4.1685 Chinese yuan from 4.1575 yuan yesterday.

The local currency was little changed at 60.56 euro cents from 60.53 cents yesterday, and edged up to 43.03 British pence from 42.91p. It traded at ¥82.69 from ¥82.67 yesterday.

New Zealand's two-year swap rate dropped to a new two-year low 2.95% at 5pm in Wellington from 3% yesterday, and the 10-year swap rate fell to 3.91% from 3.93%.

(BusinessDesk)