Kiwi extends decline on gloomy outlook for economy

Friday 17th September 2010

The New Zealand dollar continued to weaken in the wake of the Reserve Bank’s gloomy outlook on the economy, extending its decline against most major currencies overnight.

Yesterday Reserve Bank Governor Alan Bollard held the official cash rate at 3% and pared back his track of interest rate hikes, saying further increases would be at a slower pace over the next few years as the recovery in New Zealand’s economy stumbles. The Christchurch earthquake compounded an already deteriorating picture for the local economy, though Bollard said a decision was made to go on hold the day before the disaster.

“We have got a negative tone toward the kiwi in wake of RBNZ statement with their change in growth profile,” said Richard Franulovich, a New York-based currency strategist at Westpac.

“When your central bank takes a knife to the growth forecast, your currency is going to trade lower across the board.”

The kiwi fell to 72.43 US cents from 72.63 cents yesterday, and declined to 66.74 on the trade-weighted index of major trading partners’ currencies from 66.92. It slipped to 77.34 Australian cents from 77.34 cents and rose to 85.38 yen from 85.38 yen yesterday. It fell 55.4 euro cents from 55.79 yesterday and slipped to 46.35 pence from 46.49 pence.

“Near term, we expect (the kiwi) to trade lower but not aggressively so. It will definitely underperform the Aussie dollar,” Franulovich.

The yen traded near a month-low against the greenback after Japan spent as much as US$20 billion this week to weaken its currency to ease pressure on exporters.

Finance Minister Yoshihiko Noda said Japan would continue to take action, and had acted without foreign assistance.

Stock markets were down in Europe on weaker UK data, while stocks on Wall Street were mixed after FedEx earnings fell short of analysts’ expectations. The Standard & Poor’s 500 Index fell 0.04%.

Businesswire.co.nz

Comments from our readers

No comments yet