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NZ dollar may extend decline vs euro

NZ Newswire logoNZ Newswire 17/05/2017 Paul McBeth

New $10 notes. © Mark Tantrum/Getty Images New $10 notes. The New Zealand dollar may extend its decline against the euro and other cross-rate currencies on concern the carry trade will be eroded by US rate hikes as soon as next month.

The carry trade is where investors borrow at low interest rates to buy higher-yielding assets.

The kiwi fell to an 11-month low 61.99 euro cents and was trading at 62.09 cents as at 5pm in Wellington from 62.59c Tuesday. It increased to US68.96c from 68.61c.

Currencies including Japan's yen, the British pound and euro gained against the greenback with growing concerns US President Donald Trump will struggle to enact major tax reform and drive a trillion-dollar infrastructure spend.

However, the kiwi and Australian dollars were more muted as investors still expect the Federal Reserve to raise interest rates whereas the Antipodean central banks aren't seen budging on rates for the foreseeable future, reducing the interest rate advantage of the South Pacific nations.

"We've had nine years of buoyant carry trade, and now all the reasons for wanting them are gone, and the corporates holding them are slowly coming to the realisation and exiting them," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington.

"We're seeing quite a lot of unwinding of the kiwi/euro, kiwi/Sterling, kiwi/yen and Aussie/yen as well, which should keep a cap on the kiwi and the Aussie."

The kiwi traded at 53.32 British pence from 53.29 pence Tuesday and dropped to 77.60 yen from 78.09 yen.

The local currency didn't react strongly to an unexpected increase in whole milk powder prices at the latest GlobalDairyTrade event or data showing a pick-up in producer prices led by the recovery in dairy prices.

The kiwi was little changed at A92.90c from 92.84c after Standard & Poor's affirmed Australia's rating at AAA.

The local currency increased to 4.7493 Chinese yuan from 4.7410 yuan.

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