The New Zealand dollar fell to its lowest level since February 2016 as South Africa entered a recession for the first time in nine years, reigniting fears over emerging markets and stoking demand for the greenback. 

The kiwi dropped as low as 65.38 US cents, trading at 65.55 cents as at 8am in Wellington from 65.96 cents yesterday. The trade-weighted index declined to 71.27 from 71.55 yesterday. 

South Africa’s rand depreciated 3.4 percent to 15.3418 per US dollar after Africa’s second-largest economy shrank 0.7 percent in the second quarter, entering its first recession since 2009. That triggered a wider sell-off of emerging market currencies, including Argentina’s peso, which weakened 3.1 percent, as investors flocked to the relative safety of the greenback ahead of US President Donald Trump’s decision on whether to proceed with harsher tariffs on Chinese imports. The yield on 10-year US Treasuries rose 5 basis points to 2.9 percent, while stocks on Wall Street fell after reopening from their Labor Day holiday.

“Emerging market currencies have continued to fall, with the South African rand the biggest loser this time, as GDP data were much worse than expected and the economy has tipped into recession,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “Despite a discount being built into the NZD ahead of any announcement, we still see a good chance of further NZD weakness if Trump goes ahead with the plan as proposed.”

Dairy prices fell 0.7 percent at the latest Global Dairy Trade auction, including a 2.2 percent decline in whole milk powder prices to US$2,821 a tonne. ANZ Bank New Zealand economists Philip Borkin and Daniel Wilson said in a note the risks were skewed to the downside, which could take the shine off New Zealand’s terms of trade and ultimately weigh on the kiwi, “where commodity prices were one of its last bastions of support.”

The kiwi traded at 91.24 Australian cents from 91.32 cents yesterday after the Reserve Bank of Australia kept monetary policy unchanged and largely looked through Westpac Banking Corp’s out-of-cycle mortgage rate hike. New Zealand’s Reserve Bank has kept open the chance of a rate cut.

The local currency fell to 50.97 British pence from 51.29 pence yesterday as Bloomberg reported European Union officials are investigating ways to avoid a hard border with Northern Ireland as a means to make the deal more palatable to the UK. The kiwi declined to 56.55 euro cents from 56.84 cents. 

The New Zealand dollar dropped to 73.06 yen from 73.31 yen yesterday and decreased to 4.4847 Chinese yuan from 4.4986 yuan. 

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