NZ dollar heads for losing week on rate cut, weakening economy

Friday 12th September 2008

The New Zealand dollar headed for a weekly slide after the central bank cut interest rates more than expected and evidence mounted of the extent of the economy's slump.

The kiwi dollar bought 65.36 U.S. cents, having traded as low as 64.53 cents overnight, the lowest in almost two years. The currency has fallen from as much as 67.50 cents this week.

"The risks look skewed in favour of a deeper correction in coming sessions," said Danica Hampton, currency strategist at Bank of New Zealand. "For today, worries about a global slow-down, a NZ recession and expectations about further RBNZ rate cuts should ensure bounces are limited to 65.40 to 65.60."

Reserve Bank Governor Alan Bollard yesterday said he has become less concerned about inflation as the economy has weakened. ``With medium-term inflation pressures expected to ease, it is appropriate to move toward a less restrictive stance,'' he said, after cutting the official cash rate a half point to 7.5%.

Figures today showed retail sales fell more than expected in July, raising the prospect of an extended slump in consumer demand as households cope with higher costs of fuel, food and borrowing.

A declining currency is a boon for manufacturers including Fisher & Paykel Healthcare Corp., which earns much of its revenue in U.S. dollars. The stock rose 2.2% to NZ$3.21 today.

By Jonathan Underhill

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