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NZ dollar falls as commodity prices dip

NZ NewswireNZ Newswire 11/09/2016 Jonathan Underhill

The New Zealand dollar fell as a key measure of market volatility jumped to its highest level in more than two months and commodity prices declined.

The kiwi traded at 73.14 US cents as at 8am in Wellington, the lowest in about a week, from 73.33 cents in late New York trading on Friday and down from 73.97 cents in Asia at the end of last week. The trade-weighted index fell to 77.94 from 78.01 at the New York close and from 78.37 on Friday in Wellington.

The Chicago Board Options Exchange Volatility Index, or VIX, rose to 17.52 on Friday, from 12.6 the previous day to reach the highest since late June when it peaked at 26.72. The index is constructed of implied volatilities of S&P 500 Index options and is known as the investors 'fear gauge'.

Meanwhile, the CRB Index of 19 commonly traded commodities fell 1.7 per cent on Friday, although it is up about 18 per cent from its lows in February. Increased risk aversion and weaker commodity prices tend to weigh on so-called commodity currencies such as the kiwi and Australian dollar, whose exports are tied to global growth.

"The largest currency movements were largely confined to the commodity currencies, reflecting the surge in the VIX and a chunky fall in commodity prices," said BNZ's Jason Wong.

Mr Wong said speculation that central banks are nearing the end of the extraordinary stimulus measures has contributed to the spike in volatility.

"After a prolonged period of low volatility since the days following the Brexit vote, markets have awoken to the fact that the days of further monetary stimulus might be numbered," he said.

The currency fell to 65.09 euro cents from 65.25 cents in New York on Friday and dropped to 96.94 Australian cents from 97.10 cents. It fell to 55.12 British pence from 55.26 pence and traded at 75.08 yen from 75.24 yen. The kiwi fell to 4.8868 yuan from 4.8982 yuan.

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