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New Zealand Dollar off highs after Earthquake, Aussie Dollar Gains - Reuters

Posted by Chris Advincula on Aug 16, 2013 7:07:00 AM
12:39am EDT

* NZD off a quarter cent on quake, still up on day

* Market assumes RBNZ will be less aggressive in any tightening

* Aussie gains on USD, kiwi and yen

By Naomi Tajitsu and Cecile Lefort

SYDNEY, Aug 16 (Reuters) - The New Zealand dollar pulled back from a two-month peak on Friday after a strong earthquake near Wellington led investors to temper expectations on the speed and scale of any future rate hikes, though the impact could prove fleeting.

The kiwi dollar fell one-third of a cent to a session low of $0.8053 after the 6.8 magnitude quake, sending panicked workers and residents into the streets just weeks after a similar-sized tremor struck the city.

It later recovered to last trade at $0.8070, having jumped to a two-month peak of $0.8113 minutes before the quake.

"The kiwi sold down to about $0.8060, but it's had a bigger effect on the AUD/NZD cross," said Tim Kelleher, head of institutional FX sales at ASB in Auckland.

The news prompted a wave of short-covering, sending the Aussie to NZ$1.1347, from a low of NZ$1.1268. Markets had been shorting the Aussie on diverging interest rate outlooks between Australia and New Zealand.

"It reduces the risk of a rate hike in New Zealand. There's no two ways about it," added Kelleher.

Investors reined back expectations for when the Reserve Bank of New Zealand might raise interest rates in coming months, with bill futures rising as much as 12 ticks .

A large quake devastated the city of Christchurch in 2011, doing so much damage to the economy that the RBNZ cut rates to help support growth.

While authorities said it was too early to assess the impact of Friday's tremor, there were some reports of superficial damage to buildings.

Air and rail services were being suspended while officials checked tracks and runways for damage. There were also widespread power outages across the north of the South Island.

In Australia, markets are still pricing in around a 70 percent chance of a further cut in rates by year-end, though that had been more than 100 percent last week.

The quake news dragged the Aussie higher to $0.9172 , from $0.9143 in early trade. It had already been underpinned by strong buying by Japanese investors with the Aussie up 0.7 percent on the day to 89.53 yen.

Also helping the Aussie was a sharp jump in the Shanghai Composite, up 3 percent on the day.

Resistance was found at $0.9190 ahead of a stiff barrier around 0.9220 with traders citing stops above $0.9170 an $1.9180.

New Zealand government bond prices were a touch softer, sending yields 1 tick higher.

Australian government bond futures fell after US Treasury yields broke to two-year highs on Thursday, with 10-year yields up at 2.79 percent.

The three-year bond contract shed 6 ticks to 97.210, while 10-year contract retreated 8 ticks to 96.100, having touched a five-week trough of 96.000.


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Charts: WorldWideMarkets Flash Trader


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