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NZ dollar holds gains in light trading, may fall in 2009

by Paul MacBeth

Monday 29th December 2008

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The New Zealand dollar held its gains in light Christmas season trading as rising U.S. stocks spurred some investors to seek higher-yielding, or riskier assets.

New Zealand's official cash rate of 5%, having been slashed 325 basis points since July, is more than 4 percentage points higher than the Federal Reserve's zero-to-0.25% target range. New Zealand consumers increased spending in the post-Christmas sales rush, according to Paymark, the country's largest eftpos company, with transactions up 8% from a year earlier.

"In the next three weeks we could see the kiwi rally a bit," said Imre Speizer, currency strategist at Westpac Banking Corp. It should pass 61 U.S. cents before "it turns around."

The kiwi was little changed at 57.61 U.S. cents from 57.63 cents on Friday, having climbed from about 53 cents at the beginning of December. It rose to 52.24 yen from 52.12 yen. It dropped to 83.97 Australian cents from 84.21 cents and was little changed at 40.97 euro cents.

Speizer predicts the global financial rout will weigh more heavily on Asia in 2009, with China's economic growth slowing and Japanese production declining significantly. "Asia will start feeling the impact," he said.

Japan reported an 8.1% fall in factory production in November, and its Trade Ministry is predicting a further 8% decline for the month of December.

South Korean President Lee Myung Bak said his nation's economy may shrink in the first and second quarters of next year, the first such contraction since 1998.

Manufacturing in the U.S. is forecast to have contracted at its fastest pace since 1980 as slumping demand forces factory's to cut back production, according to a Bloomberg survey of economists.


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