Exchange market settling down

Press, 22 June 1984, Page 10

Exchange market settling down

The foreign-exchange market was quiet yesterday, and settled back to almost normal, with trading in both the New Zealand dollar and third currencies being very light.

After the Reserve Bank intervention on Monday, which helped to settle the market, rates were now being set on a normal commercial basis dealers said.

Corporations and financiers appear to be satisfied with their positions, although many may be put off by the great strength of the United States dollar.

After a minor flurry when the Asian markets opened trading quickly steadied. However, the New Zealand dollar remained weak against the United States dollar. Dealers said the New Zealand dollar traded right down the bottom side of the Reserve Bank mid-rate which closed at $U50.6393 from its opening at 0.6401. Corporate activity was mostly directed towards buying at the U.S. spot rate with the forwards market quiet, dealers said, and the panic was now off.

The three-months forward position had fallen back to 250 points on the “left-hand side” (i.e the buying of U.S. dollars) so that buyers who wanted their dollar purchase guaranteed for three months were paying a premium of 2.5 U.S. cents per dollar-equivalent to an annual rate of 17 per cent.

On the right-hand side, few U.S. dollars were being sold, as most holders of foreign currency adopt a wait-and-see attitude. Meanwhile, the U.S. dollar continued to climb.

Against the yen it opened at 233.85/95, and closed around 234.20/30 yen, but after opening at 2.7750/60 marks the dollar came off slightly during the day, to 2.7730/40.

The Australian dollar remained weak, falling further by the close to 5U50.8724/29 from its opening at 0.8780/85. The Australian unit has come off more than 2 cents since the beginning of the month. Sterling picked up during the day and traded up to JUS 1.3680/90 from its opening at 1.3657/64, but lost ground again later to close at 1.3670/77. In the New Zealand shortterm money market conditions were virtually unchanged, with rates staying at the 17 per cent level they reached about two weeks ago.

Money market interest rates for medium-to-large 90-day commercial bills were round 15.5 per cent yesterday, and for smaller bills (between $20,000 and $100,000) around 14 per cent. The Reserve Bank did some buying in the market at 16 per cent, but not in sufficient volumes to influence trading.

One new factor in the market last week was the rapid rise of secondary

market Government stock yields, which shot up to 11.75-12 per cent. Presumably to “match” inflationlinked bonds.

The upshot of this is that those institutions that take movements in the market value of stock into profit and loss, may be faced with substantial losses. But some institutions were trying to sell government stock in an effort to improve their liquidity, in spite of the immediate loss this entailed.

The shortage of money in the money market might have been even worse if “Our New Zealand” bonds had proved the runaway success predicted for them. The Our New Zealand bonds were designed to mop up domestic liquidity, and the fact they’re not being overly successful is assisting the private capital markets through a difficult period. “If the ONZ bonds had proved to be as successful as, say the first issue of KiSS stock we really would be in trouble right now,” one dealer said. The first issue of KiSS stock raised $1.4 billion. Despite a massive advertising campaign only around $8 million worth of the bonds have been sold since they went on sale on June 5.

The issue closes on August 31.

A Reserve Bank official yesterday said: “Yes, it’s moving pretty slowly. It’s a little disappointing.”