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NZ dollar hits 7 month high vs pound on weak U.K. economy

By Paul McBeth

Tuesday 30th December 2008

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The New Zealand dollar reached a seven-month high against the British pound after a report showed the slump in U.K. property prices would extend into next year, indicating a prolonged recession.

British property research company Hometrack Ltd. said U.K. property prices fell 8.7% over the last twelve months, and would probably decline in the coming year. Economists at the Centre for Economics and Business Research Ltd. are forecasting negative 2.9% economic growth in Britain next year. The weakness in the British economy helped the kiwi break the 40 pence mark versus the pound for the first time since May. The U.K. is New Zealand's fifth-largest export market.

"Very weak growth is weighing on the sterling" and that's helped lift the kiwi, said Danica Hampton, currency strategist at Bank of New Zealand. "The Bank of England is cutting rates and will do what it takes, definitely, but the U.K. is looking very ugly."

The kiwi rose as high 40.05 pence before coming back to 39.74 pence this morning from 39.45 yesterday. It fell to 57.91 U.S. cents from 57.99 cents yesterday, and dropped to 52.18 yen from 52.49 yen. It increased to 41.22 euro cents from 40.70 cents yesterday, and fell to 83.92 Australian cents from 83.97 cents.

Hampton said the New Zealand dollar may trade between 57.50 U.S. cents and 58.50 cents today. She predicts it will come under some downward pressure if the U.S. dollar gains against the euro.

She expects the U.S. dollar will reverse its downward trend as more nations move towards a "zero interest rate policy" and she doesn't anticipate low rates will undermine the value of the currency. She said nations that have been proactive in cutting rates and introducing fiscal stimulus look more attractive than those that have been more cautious, and she predicts the U.S. will benefit from its actions next year.

The U.S. dollar fell against its six most-traded counterparts after Israeli air strikes in the Gaza Strip that killed almost 300 people heightened tensions in the Middle East and raised concerns of a disrupted oil supply.


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