NZ dollar falls after oil production freeze fails

The New Zealand dollar fell after oil producers failed to reach agreement to freeze production at a weekend meeting in the Qatari capital of Doha, denting demand for commodity-linked currencies.

The kiwi dropped to 68.68USc at 8am in Wellington, from 69.15USc at the New York close and 68.89USc on Friday. The trade-weighted index weakened to 72.56 from 72.71 on Friday.

Eighteen oil producing nations met in Doha at the weekend to secure a deal to stabilise oil output at January levels in an attempt to stem an oversupply and bolster prices. However, Saudi Arabia said Iran, which was absent from the talks, must take part in the freeze, something the country has refused to do until its production returns to pre-sanction levels. The failure to reach agreement weighed on investor demand for risk-sensitive assets such as equities and commodity-linked currencies such as the kiwi.

"The news of that obviously will put a lot of pressure on commodity currencies as we've already seen this morning and we will also probably see a bout of risk aversion kicking in," said Stuart Ive, OMF senior dealer, foreign exchange. "Certainly the pressure will be to the downside for the kiwi as we start this week."

Mr Ive said all eyes will be on the open of the oil market at 10am New Zealand time.

"We can expect that oil prices will gap significantly lower this morning," he said, adding that if no agreement is secured between producers in coming months, oil could fall below $US30 a barrel.

New Zealand economic data on first quarter inflation scheduled for release at 10:45am is expected to show prices advanced 0.1% from the year earlier quarter, according to a Reuters poll of economists.

However, Mr Ive noted any improvement in consumer prices is now "out the window" because of the prospect of future deflation driven by lower oil prices.

The BNZ-BusinessNZ Performance of Services Index is scheduled for release at 10:30am.

The New Zealand dollar advanced to 89.90 Australian cents from 89.32 cents on Friday.

It fell to 48.34 British pence from 48.67 pence on Friday, dropped to 60.73 euro cents from 61.15 cents, slid to 74.31 yen from 75.51 yen, and weakened to 4.4457 yuan from 4.4675 yuan.

(BusinessDesk)