Dollar may fall as global slump trims commodity demand

Monday 12th January 2009

New Zealand's dollar, little changed today, may decline on further signs of global economic weakness, which has weighed on stock markets and trimmed demand for commodities.

US non-farm payrolls on Friday showed the world's biggest economy shed 2.6 million jobs last year, the most since World War II. The US economy may not climb out of recession until the third quarter, according to the Blue Chip Economic Indicators survey. Milk powder prices plummeted 9.3% in last week's auction by Fonterra Cooperative Group, the world's largest exporter of dairy products.

"Last week's string of weak global data provided a reality check on the New Year's optimism and reaffirmed that the global outlook for 2009 remains dismal," said Danica Hampton, strategist at Bank of New Zealand.

"Any further losses in global equities or commodity prices should see investors ditch growth sensitive currencies" such as the kiwi dollar for the relative safely of the US dollar and yen, she said.

The kiwi traded at about 59 US cents, little changed from Friday in New York. It bought 53.24 yen from 53.28 and traded at 83.87 Australian cents from 83.85.

The Standard & Poor's 500 Index fell 2% in New York on Friday after the Labor Department report highlighted the weak jobs market. In the UK, an Ernst & Young survey over the weekend showed profit warnings by British companies reached a seven-year high last year.

New Zealand commodity prices fell for the fifth straight month in December, according to ANZ Bank's survey, released last week. The ANZ commodity price index fell 7.4% to be 24% down in the year.

Economists expect the NZIER Quarterly Survey of Business Opinion, released tomorrow, will point to a weak start for 2009. The survey for the final quarter of 2008 "is expected to provide an ugly read on economic activity for the first half of 2009," economists at Westpac Banking Corp. said in a report. "Domestic trading activity is likely to be down, along with employment and investment intentions."

By Jonathan Underhill

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