Home > Community > Financial Markets > NZ dollar falls to two-week low as rates bet shifts

NZ dollar falls to two-week low as rates bet shifts

Published: 19 Nov 2009 20:08:04 PST

* Kiwi extends losses to two-week low on cooling rates view

* First rates hike bet now shifts to April from March

* Swap rates fall as investors reassess risk

WELLINGTON, Nov 20 - The New Zealand dollar <NZD=> shed about 1.5 percent to a two-week low on Friday and swap rates fell as investors pared down expectations for an early rise in local interest rates.

The kiwi fell to $0.7272/74 at 0330 GMT from $0.7369/73 in late Asian trade on Thursday. It briefly hit $0.7256, the lowest since Nov. 6, as risk appetite slumped on an uncertain global economic outlook. The kiwi has risen almost 30 percent since the start of the year.

Markets have bet the strength of New Zealand's recovery will be quicker and stronger than the Reserve Bank of New Zealand has been forecasting, but analysts said signs a global economic recovery may be losing steam was forcing a reassessment.

"The market is less convinced now that the central bank will hike rates in March ... and is slowly shifting expectations," said ANZ-National senior economist Khoon Goh.

The central bank has pledged to keep rates at record low 2.5 percent until the second half of next year.

Financial markets are now pricing in only a 40 to 60 percent chance of a hike in March, shifting the first increase to April, analysts said.

A Credit Suisse measure <CSRBNZ1Y=CSAU> showed the market is now pricing in 173 basis points of tightening for the next 12 months, down from 214 basis points early last week.

The caution over the economic recovery is also forcing a rethink of positions in risky, high-yielding currencies, with investors selling out of the Aussie and kiwi dollars to lock in some of the two currencies' big gains.

"People have been overweight risk. At some point it has to correct ... we are possibly seeing the beginning of such a correction," said Westpac senior strategist Imre Speizer.

Swap rates <NZDIRS> extended falls from the previous day across the board, with more receivers coming to the market in search of yields.

Two-year swaps, which broke through key 4.45 percent support on Thursday, extended their decline to 4.30 percent, and 10-year swaps slipped further to 5.98 percent.

New Zealand government debt pared back gains, with the benchmark 10-year bond <NZ10YT=RR> yield closing unchanged at 5.66 percent.