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NZ dollar may fall on weak commodity prices, sentiment: RBNZ

Wednesday 9th May 2012

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The New Zealand dollar may depreciate as the price of locally produced raw materials declines and global market sentiment deteriorates, according to the Reserve Bank.

The kiwi has "increased strongly" since November as large economies embarked on printing money and investors were keen on higher-yielding assets, though that may ease amid heightened concerns about Europe's ability to meet its region-wide austerity demands.

In its latest financial stability report, the Reserve Bank said New Zealand's currency has been bolstered by investors spurning European assets, though that may turn around with a "deterioration in market sentiment or a more marked fall in commodity prices."

Last week, the New Zealand dollar dropped below 80 US cents for the first time since January, and traders are picking it will extend its decline this week.

The kiwi dollar fell to a four-month low this morning, reaching as low as 78.61 US cents. It was recently at 78.75 cents. The trade-weighted index fell to 70.59 from 70.94 late yesterday. Bank of New Zealand strategist Mike Jones said the currency could fall to 75 cents in the next few weeks.

Governor Alan Bollard has warned he may have to cut the official cash rate if the currency stays resiliently high without economic fundaments improving to support its strength.

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