Downgrade of China hurts kiwi

The New Zealand dollar dipped below US70c as credit rating agency Moody’s Investors Service downgraded China’s rating on fears rising debt levels could stifle growth in the world’s second-biggest economy, which is also New Zealand’s and Australia’s biggest trading partner.

The kiwi traded at US69.94c as at 5pm yesterday, having touched a month-high US70.46c overnight, and down from US70.19c on Tuesday. The trade-weighted index was at 75.79 from 75.80.

Moody’s lowered China’s longterm local currency rating one notch to A1 and downgraded the outlook to ‘negative’ from ‘ stable’ on concerns the nation’s financial strength would “erode somewhat over the coming years with the economy-wide debt continuing to rise as potential growth slows”.

That weighed more heavily on the Australian dollar than on the kiwi. The warning comes ahead of the release of minutes to the Federal Reserve’s policy review from earlier this month, which may provide more clues on the timing and pace of future US interest rate hikes.

The kiwi rose to A93.92c from A93.60c on Tuesday and fell to 4.8196 Chinese yuan from 4.8346 yuan.

The prospect of rising US interest rates remains the over-arching theme for markets and Michael Johnston, senior trader at HiFX in Auckland, expects to see the kiwi dollar around US65c by the end of the year.

New Zealand’s 10-year swaps rose 3 basis points to 3.26 per cent.

The kiwi rose to ¥78.22 from ¥78.01 on Tuesday and rose to 62.54c from

62.37c. The kiwi dipped to 53.89p from 54.02p.