NZ dollar sheds 4.5% in August, 1% this week; election now in focus

The New Zealand dollar is heading for a 1 percent decline this week after shedding 4.5 percent in August as election uncertainty rises with the latest political polls.

The kiwi was trading at 71.66 as at 5pm in Wellington versus 71.79 US cents as at 8am in Wellington and from 71.68 cents late yesterday. It was at 72.38 US cents late last Friday in New York. The trade-weighted index was at 75.05 from 75.27.

The New Zealand dollar came under pressure in August when weak data led the market to pare back its expectations for upcoming rate hikes. While investors were disappointed when the central bank kept the official cash rate at 1.75 percent with future projections unchanged, the kiwi failed to recover as tensions between the US and North Korea sapped any risk appetite It was then weighed when Treasury scaled back projections for economic growth in the pre-election fiscal update.

"The NZD was a clear under-performer during August, falling against all the major currencies we closely follow," said BNZ senior markets strategist Jason Wong. "We don't think there was any one specific driver behind this performance - we think it probably reflects the combination of poor trader positioning at the start of the month and the cumulative impact of a number of slightly NZD-negative forces."

The latest blow - which pushed it to a three-month low - came when the latest Colmar Brunton Poll put support for Labour at 43 percent late yesterday, ahead of National on 41 percent while Jacinda Ardern is ahead of Bill English as preferred prime minister at 34 percent to 33 percent.

The kiwi pared some of its recent losses - after touching a low of 71.30 US cents - as the greenback weakened in Asia after a tepid personal consumption expenditures price index number in the US - the Federal Reserves' preferred inflation measure.

However, "the poll was definitely very negative for New Zealand dollar," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. The election will take place Sept 23.

Looking ahead, investors will be keeping a close watch on any further polls as well as on US jobs data due out later in the global trading day.

The New Zealand dollar fell to 90.24 Australian cents from 90.71 cents yesterday. The kiwi fell to 78.84 yen from 79.22 yen and to 4.7162 yuan from 4.7284 yuan. It traded at 60.23 euro cents from 60.34 cents and at 55.45 British pence from 55.44 pence.

The two-year swap rate fell 1 basis point to 2.17 percent while the 10-year swaps fell 2 basis points to 3.12 percent.

(BusinessDesk)