NZ dollar edged nearer 10-mth low

Tuesday 8th June 2010

The New Zealand dollar fell to near a 10-month low as comments from a Hungarian official stoked concern that Europe’s sovereign debt crisis could widen, while US employment growth fell short of expectations.

The kiwi dollar slumped 3.8% over the long weekend to drop below 66 US cents for the first time since August last year as investors’ fears about the depth of Europe’s debt crisis were sparked off by a Hungarian government spokesman saying it wasn’t an exaggeration to speculate on the country defaulting on a debt payment. Stocks in Europe and on Wall Street declined amid the gloomy outlook in Europe, while U.S. non-farm payrolls grew 431,000 last month, short of expectations, suggesting the economic recovery in the world’s biggest economy isn’t as fast as previously expected.

“There are wider concerns in the market after the weaker-than-expected non-farm payrolls and the Hungary comments about defaulting in an environment where the market’s very sensitive to sovereign debt – it’s a classic risk off where investors head to save-haven assets,” said Khoon Goh, senior markets economist at ANZ New Zealand.

“There’s increasing concern about the global recovery story, and people are pricing in potential for lower growth next year” which is dragging down the kiwi, he said.

The New Zealand dollar sank to 65.95 US cents from 68.54 cents on Friday in New York, and tumbled to 65.23 on the trade-weighted index of major trading partners’ currencies from 66.84. It dropped to 60.33 yen from 63.58 yen on Friday, and gained to 81.25 Australian cents from 81.02 cents. It fell to 5.34 euro cents from 56.22 cents last week, and declined to 45.60 pence from 46.76 pence.

Goh said the currency may trade between 65.80 US cents and 66.56 cents today, with Asian equities likely to follow the London and New York stock markets lower, and has little chance of testing the topside.

Helping add the concern about global recovery was the lack of substance from the Group of 20 nations finance ministers’ and central bankers’ meeting, which only made a passing mention about the need for structural reform in Europe.

Meanwhile, Germany joined the growing number of Euro-zone members trying to rein in spending, with its biggest austerity programme since the Second World War, as it seeks to trim 11.2 billion euros from next year’s budget.

Locally, investors will get a bit of a handle on how first-quarter gross domestic product will print with manufacturing and building data due today, while across the Tasman the National Australia Bank Business Confidence Survey will give an indication as to whether the Australian economic recovery is still on track.

Reserve Bank Governor Alan Bollard is due to release his quarterly review of monetary policy on Thursday. He will lift the official cash rate a quarter point to 2.75% in a commencement of the first increase since mid-2007.

Businesswire.co.nz

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