Dollar recovers as China lifts requirements on foreign deposit holdings

The New Zealand dollar recovered its losses from the weekend as Chinese authorities raised the requirements on foreign financial institutions' yuan deposits, helping soothe nervous investors about the strength of the world's second-biggest economy.

The kiwi rose to 64.67 US cents at 5pm in Wellington from 64.20 cents at 8am, and was little changed from 64.62 cents on Friday in New York. The trade-weighted index gained to 71.53 from 71.13.

The People's Bank of China said it will impose reserve-requirement ratios on yuan deposits by foreign financial institutions operating in China, and set the trading band for China's currency at a slightly lower rate, helping calm investors nervous about volatility in Chinese equity markets. The Shanghai Composite Index was flat in afternoon trading and investors will be watching for tomorrow's Chinese data on fourth quarter growth and December retail sales and industrial production.

"If the hard (Chinese) data starts turning down, the market will take notice," said Sam Tuck, senior foreign exchange strategist at ANZ Bank New Zealand in Auckland. "The kiwi's had a little bit of calm and consolidation today, but we'll see what happens."

A BusinessDesk survey of eight analysts predicts the kiwi will trade between 63 US cents and 66.50 cents this week, with five expecting it to fall, and three seeing it higher.

Traders will be watching for the New Zealand Institute of Economic Research's quarterly survey of business opinion tomorrow, which will likely show firms were relatively upbeat through the final three months of 2015. That's ahead of a GlobalDairyTrade auction on Tuesday in the US, and fourth-quarter inflation data on Wednesday.

New Zealand's two-year swap rates slipped one basis point to 2.69 percent at 5pm in Wellington, and 10-year swaps fell four basis points to 3.45 percent.

The local currency fell to 93.47 Australian cents from 94.03 cents on Friday in New York, and was little changed at 4.2540 Chinese yuan from 4.2546 yuan. It increased to 75.83 yen from 75.64 yen last week, and edged up to 59.36 euro cents from 59.18 cents. The kiwi was little changed at 45.29 British pence from 45.31 pence last week.

(BusinessDesk)