Dollar holds gains as markets get greater clarity on Chinese yuan

The New Zealand dollar held on to gains overnight after the People's Bank of China (PBOC) gave investors more clarity on how much further it's willing to let the yuan depreciate after freeing up restrictions on trading of the currency.

The kiwi traded at 66.13USc at 5pm in Wellington from 66.19USc at 8am, up from 64.86USc yesterday. The kiwi rose to 4.2360 Chinese yuan from 4.1695 yuan yesterday.

China's central bank today held a press conference to better explain a new policy where it devalued the yuan and will allow for more market influence in setting the daily fix. PBOC vice-governor Yi Gang dismissed suggestions the devaluation was an attempt to make China's exports more competitive, and said the PBOC will try to ensure normal fluctuations in the currency and will step in when the market is distorted.

"We won't see further significant depreciation [in the yuan] in an extreme sense," said Bank of New Zealand currency strategist Raiko Shareef. "It has become apparent that the PBOC will intervene to support, and that helped the kiwi rally overnight."

Greater clarity about China's monetary policy will put investors' focus back on New Zealand's slowing economic data and whether the pace of growth in the US will continue to support higher interest rates in the world's biggest economy, Mr Shareef said.

Fonterra Cooperative Group, the world's largest dairy exporter and New Zealand's biggest company, was put on creditwatch negative by Standard & Poor's today as the slump in global dairy prices and increased capital expenditure was seen weighing on the company's balance sheet. Fonterra plans to cut the volume of product it sells at the GlobalDairyTrade auctions to try and prop up prices.

New Zealand house sales rose at an unseasonally high level in July, and prices in Auckland, the country's biggest city, dipped in the month, according to Real Estate Institute figures.

The two-year swap rate was unchanged at 2.83% from yesterday, and the 10-year swap increased to 3.585% from 3.57%.

The local currency was little changed at 89.54Ac from 89.60Ac yesterday, and edged up to ¥82.29 from ¥881.19. It gained to 59.36 euro cents from 58.56 cents yesterday, and rose to 42.32 British pence from 41.69p. The trade-weighted index advanced to 70.98 from 70.19 yesterday.

(BusinessDesk)