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NZ dollar rounds out worst year since 1984, set to go lower

by Paul McBeth

Wednesday 31st December 2008

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The New Zealand dollar capped off its worst year in 24 against the U.S. dollar, and is likely to extend its decline as the global economy deteriorates in 2009.

The kiwi dollar fell 25% against the U.S. dollar this year, the most since it plummeted 28% in 1984 when the currency was devalued by the Lange government. Reserve Bank Governor Alan Bollard told a media conference this month that "very low growth" forecast for the next four quarters as the recession abates. Some economists predict the economy will continue to contract in the first two quarters of next year as the global slump extends into Asia.

"As people come back in the New Year and their worries about the recession continue, the dollar will fall again," said Danica Hampton, currency strategist at Bank of New Zealand. "When the economy finds its feet, the dollar will climb."

The kiwi fell to 57.68 U.S. cents from 58.16 cents yesterday, and dropped to 52.07 yen from 52.46 yen. It was down to 83.40 Australian cents from 84.07 cents, and declined to 40.85 euro cents from 41.11 cents.

Hampton said the New Zealand dollar may trade between 57.40 U.S. cents and 58 cents today. She said the kiwi should hit a trough early next year when it may go as low as 50 U.S. cents and 45 yen.

She said central bank interest rate cuts and fiscal stimulus worldwide should help the global economy recover in the second two quarters of next year, but "if the world worsens, then the risk is the currency will fall further."

In a sign that the domestic recession is affecting consumers, November household borrowing in New Zealand fell 0.1% to NZ$174.3 billion, the first monthly decline in 17 years, as they pull back on their exposure to credit.


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