NZ dollar little changed as activity ebbs in lead-up to Christmas

The New Zealand dollar was little changed as activity ebbed in the lead-up to the Christmas-New Year break, when many local market participants tend to take holidays.

The kiwi traded at 77.49 US cents at 5pm in Wellington from 77.58 cents at 8am and 77.47 cents on Friday in New York. The trade-weighted index declined to 78.53 from 78.83 last week.

New Zealand's currency has been a favourite among investors because of its relatively high yield and as the end of the year draws near, some traders typically park cash in kiwi dollars to latch on to that return while they assess the investment landscape. That yield advantage has been declining over the past few months as investors prepare for the Federal Reserve to start raising interest rate next year.

"You've got a pain period over Christmas and New Year where it's quite expensive to be short the kiwi," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland, referring to the practice of betting an asset will fall in value. "The trend seems to be sell on rallies in the kiwi."

ASB's Kelleher said the kiwi dollar will probably depreciate through 2015 as the Fed moves to higher interest rates, and the prospect of falling dairy prices and a slower return to surplus for the government may prompt the Reserve Bank to keep interest rates on hold for longer.

"The market is quite bearish on the Australia and obviously has concerns over Chia as well," Kelleher said. "You can't have China cutting rates, Australia talking about cutting rates and New Zealand hiking rates - one of those things is not right."

The kiwi edged lower to 94.94 Australian cents at 5pm in Wellington from 95.09 cents last week, and gained to 4.8209 Chinese yuan from 4.8177 yuan on Friday in New York.

New Zealand consumer confidence fell in the December quarter according to the Westpac McDermott Miller survey, as falling dairy prices weighed on rural and provincial areas.

The kiwi was little changed at 63.24 euro cents from 63.33 cents on Friday in New York, and traded at 49.52 British pence from 49.55 pence. It was little changed at 92.51 yen from 92.56 yen last week.