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Dollar extends decline as stocks slide

By Paul McBeth

Wednesday 12th November 2008

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The New Zealand dollar fell for a second day as global stocks extended their slide, discouraging the carry trade, where investors fund purchases in higher-yielding, or riskier assets with cheap loans in Japan.

General Motors, the oldest automaker, fell to its lowest price since 1942 on concern it is burning through its cash and teetering on the edge of bankruptcy. In New Zealand, Prime Minister-designate John Key will meet Treasury officials today for a briefing on the national accounts, which may indicate widening fiscal deficits.

“Risk aversion is either up or down – there’s nothing inbetween.” said Tim Kelleher, corporate risk manager of ASB Bank. “Bad equity news sees selling of the dollar.”

The kiwi slipped to 56.1 yen from 57.03 yesterday, and fell to 57.45 US cents from 58.37 cents. It dropped to 87.13 Australian cents from 87.54.

The Dow Jones Industrial Average fell 2% to 8697.42, with GM sliding 14%. Aluminium maker Alco dropped more than 6% after halting expansion of an Australian refinery on waning demand.

The yen strengthened to 97.76 per dollar and gained to 122.6 per euro, the first gain in three days, as Japanese investors brought their funds home and traders reversed positions funded in the currency that offers the lowest interest rates among major developed economies.

Kelleher said the kiwi dollar will probably trade in a range of 57 US cents to 58.25 cents today. In the coming week, he’s predicting it will range from 56 cents to 61 cents.

A worsening fiscal outlook will add to pressure on Reserve Bank Governor Alan Bollard to keep slashing interest rates “harder and faster” to revive an economy travelling through its first recession since 1998. Bollard’s rate cuts since July constitute the steepest easing cycle since the official cash rate was introduced in 1999.

The central bank today released its financial stability report, concluding that the nation’s lenders and their Australian parents are “well positioned to withstand the economic downturn.” The central bank has widened the range of securities it will accept from lenders and agreed a US$15 billion arrangement with the Federal Reserve to ensure there is sufficient access to dollars.

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