Kiwi falls to 5-month low v yen on rising risk aversion

The New Zealand dollar fell to a five-month low against the yen as geopolitical tensions sapped investors' risk appetite, driving more investors to Japan's currency.

The kiwi dollar fell to 76.04 yen as at 5pm in Wellington, and earlier touched 75.86 yen, the lowest since Nov. 14, from 76.91 yen late yesterday. The kiwi slipped to 69.45 US cents from 65.54 cents and the trade-weighted index fell to 75.77 from 75.94.

Reuters reported today that Chinese President Xi Jinping discussed the situation in North Korea with US President Donald Trump and Chinese state media reported Xi saying a resolution of tensions should be achieved by peaceful means. However, a separate report said Japan's navy plans to join a US navy strike group led by the aircraft carrier USS Carl Vinson in a joint show of force off the Korean peninsula in an effort to deter the secretive state from conducting more missile tests.

"There's certainly plenty of chest pumping going on. Yen crosses are stronger across the board. There's a little bit of risk off," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. The yen is a funding tool for carry trades and some of those have been unwound, he said.

A carry trade is where an investor uses funds borrowed in a country with low interest rates such as Japan to invest where interest rates offer a better return, such as New Zealand.

North Korea has warned it was prepared to launch a nuclear attack on the US if provoked, its state media reported. Its leader Kim Jong Un has continued with missile tests and Reuters reported the reclusive nation is preparing for its sixth nuclear test, although it is not currently considered capable of launching a nuclear device that could reach America. Meanwhile, US Secretary of State Rex Tillerson arrived in Moscow for talks on the standoff over Syria. The US has said Russia is complicit in Syria's chemical weapon attack on rebels in its bloody civil war, and ahead of his arrival in Moscow, Tillerson said the reign of Syria's Bashar al-Assad is coming to an end and that he hopes Russia will conclude "that they have aligned themselves with an unreliable partner."

"Gold and the Japanese Yen have strengthened as mounting geopolitical tensions continue to weigh on markets," said dealers at HiFX, in a note. "Overnight North Korea described the US deployment of a navy strike group to the Korean Peninsula as 'outrageous', and has warned that North Korea is ready to defend with any mode of war."

Spot gold, which along with the yen is perceived as a haven asset in times of reduced risk appetite, climbed to US$1,279.80 an ounce overnight, the highest since early November.

The kiwi fell to 55.62 British pence from 55.96 pence late yesterday after a UK inflation measure for March unexpectedly held up at 2.3 percent, the highest in more than three years.

The New Zealand dollar was trading at 92.66 Australian cents from 92.69 cents yesterday. It declined to 65.47 euro cents from 65.64 cents yesterday and fell to 4.7893 Chinese yuan from 4.7992 yuan.

New Zealand's two-year swap rate rose 2 basis points to 2.26 percent and 10-year swaps fell 2 basis points to 3.26 percent.

(BusinessDesk)