Dollar trades near seven-year low vs. yen, may drop further

By Paul McBeth

Tuesday 28th October 2008

The New Zealand dollar traded near a seven-year low against the Japanese yen and near a five-year low against the US dollar amid concern global economic weakness is spreading to Asia, driving down demand for commodities.

The yen hit a 13-year high against the US dollar as investors sold higher-yielding assets funded in Japan�s currency, prompting the G-7 to express concerns about its �extreme volatility.� The currency gained as fears of a global recession drove down Asian stocks, with the Nikkei 225 dropping 6.4% to a 26-year low yesterday.

�There are fears about the recession spreading to Asia,� said Robin Clements, senior economist at UBS. �Along with declining commodity prices, this is causing further pressure� on the New Zealand dollar.

The kiwi dollar bought 50.89 yen, having sunk to as low as 49.42 yen, the weakest since 2001, late yesterday. It bought 54.12 US cents from 53.73 cents. The US dollar traded at 94.08 yen from 92.52 yen and has tumbled from more than 110 yen in late August.

The strength of the yen against the US dollar fuelled speculation the Bank of Japan has been covertly intervening to support its currency said Danica Hampton, currency strategist at Bank of New Zealand.

As the New Zealand and Australian dollars plummeted against the yen, the Reserve Bank of Australia intervened for the second trading day in a row, buying its currency to prop it up.

The US Federal Reserve is expected to cut its target rate to just 1% at this week�s meeting, and a European rate cut is anticipated in November, Hampton said.

�While the outlook for the global economy remains dismal and risk aversion rife, expect the New Zealand dollar to remain under pressure,� she said.

Investors will have a better idea about the global situation when US third-quarter GDP figures are released later today. Germany and the European Commission will announce business and consumer confidence surveys later this week.

BusinessWire.co.nz

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