NZ dollar falls before data likely to show prolonged recession

By Paul McBeth

Tuesday 23rd December 2008

The New Zealand dollar fell amid expectations that figures today will show a deepening recession and after global stocks fell on the deteriorating outlook for earnings.

New Zealand's economic recession probably worsened in the third quarter, with a forecast contraction of 0.5%, more than twice the Reserve Bank's expectation, according to a Reuters survey. U.S. stocks tumbled after Walgreen Co., the country's second-largest drugstore chain, Monsanto Co., the world's largest seed producer, warned of weaker earnings. The Dow Jones Industrial average fell 1.9% while the Standard & Poor's 500 dropped 2.9%.

The kiwi dollar is "fragile," said Imre Speizer, currency strategist at Westpac Banking Corp. "It will take a significant number to push the kiwi down."

The kiwi fell to 57.53 U.S. cents from 57.79 cents yesterday, and it dropped to 83.67 Australian cents from 84.29 cents. It gained to 51.86 yen from 51.79 yen yesterday, and was up to 41.28 euro cents from 41.08 cents.

Speizer said the kiwi may trade near the top of a range between 57 U.S. cents and 58 cents today.

The wider gap between New Zealand's exports and imports, shown in yesterday's third quarter balance of payments data suggests the current account gap could exceed 10% of GDP next year, said Danica Hampton, Bank of New Zealand currency strategist.

A deeper contraction in the New Zealand economy may force central bank Governor Alan Bollard to continue slashing interest rates in January to revive slumping domestic demand. Bollard has cut the official cash rate 325 basis points to 5% from 8.25% in July, when he embarked on the steepest series of cuts since the inception of the OCR in 1999.

(Businesswire.co.nz)

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