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Dollar may fall as US stocks drop

By Paul McBeth

Wednesday 10th December 2008

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The New Zealand dollar may fall after US stocks declined and Australian central bank Governor Glenn Stevens raised the prospect of a faltering Chinese economy, which would sap demand for raw materials.

US stocks stopped a two-day advance as companies forecast disappointing earnings. FedEx Corp., the second-largest American packaging and shipping company, shed over 15% after forecasting a declining profit. Stevens told an audience of economists yesterday that the Chinese economy has “slowed much more quickly than anyone had forecast.” In New Zealand, government figures this week may show retail sales growth stalled in October.

“If China slows, there will be further issues for 2009 and the New Zealand and Australian currencies will suffer,” said Alex Sinton, senior dealer at ANZ National Bank. The outlook for weaker retail sales at home may also weigh on the kiwi, he said.

The kiwi increased to 53.88 US cents from 53.75 cents yesterday and dropped to 49.57 yen from 49.64 yen. It weakened against the Australian dollar, falling to 82.10 cents from 82.32 cents yesterday, and decreased to 41.75 euro cents from 41.80 cents.

Sinton said the dollar may trade between 53.50 US cents and 54.95 cents today.

The Reserve Bank of Australia predicts Chinese industrial production declined over the last four months. Stevens said there is “every chance that the rate of growth of China’s GDP is currently noticeably below the 8% pace.”

In a further sign of the global slump, Japan’s economy contracted in the third quarter faster than forecast, and the Bank of Canada acknowledged its economy had entered a recession.

New Zealand’s third quarter trade figures out today will likely show an increase in export growth and a decline in imports, said Bank of New Zealand in a report. It predicts New Zealand’s terms of trade “took a hammering” and forecasts a 5% decline driven by weaker dairy and beef prices.

The weak local data combined with a grim global outlook is expected to put pressure on the kiwi, and the currency’s volatility may continue to attract sellers, said Danica Hampton, currency strategist at BNZ.

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