NZ dollar tumbles to 8-month low as US debt talks seen failing, stocks slide

Tuesday 22nd November 2011

The New Zealand dollar fell to an eight-month low amid reports a US congressional ‘super committee’ has failed to agree on US$1.2 trillion of budget cuts, stoking concern unwieldy levels of debt in the US and Europe will stifle global growth.

The kiwi dollar fell to 74.70 US cents, the lowest since March, from 75.64 cents late yesterday. The trade-weighted index declined to 66.45 from 66.99, the lowest since March 29.

Stocks fell in the US and Europe, with the Standard & Poor’s 500 Index falling about 2 percent to 1191.53, the first time it has dropped below 1200 since early October.

Republican and Democrat members of the 12-member panel are expected to say they can’t agree on deficit reduction measures, meaning automatic budget cuts would begin in 2013, Bloomberg reported.

“It would be very difficult for them to reach bipartisan consensus – the divide is too great,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand. “The failure of US debt talks compounds the ongoing concerns around Europe. The kiwi dollar is very, very precariously poised.”

The New Zealand dollar fell to around 74.50 US cents overnight. Should it break below that level, the next level of support would be around 73.40 cents, Goh said. If that fails, there’s support at 71.30 cents, he said.

The US dollar gained against so-called growth currencies, including the Australian dollar, as investors eschewed risk.

In New Zealand, the central bank is scheduled to release its survey of inflation expectations later today, which will help show whether traders are making the right bet that Governor Alan Bollard will cut interest rates in the next 12 months.

A decline from the third quarter reading of 2.9 percent for two-year ahead inflation is expected, according to Kymberly Martin, market strategist at Bank of New Zealand.

“A stubbornly high reading would be concerning for the RBNZ, as it keeps rates on hold at the historic low of 2.50 percent,” she said.

The kiwi dollar fell to 57.44 yen from 58.06 yen yesterday and gained to 75.97 Australian cents from 75.78 cents. The kiwi fell to 55.30 euro cents from 55.90 cents and dropped to 47.75 British pence from 48.03 pence.

BusinessDesk.co.nz

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