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NZ dollar weakens as oil's decline stokes US dollar

Wednesday 3rd September 2008

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The New Zealand dollar declined, reaching the weakest level in more than 12 months, as the price of crude oil declined, brightening the prospects for the US economy and currency.

The kiwi dollar traded at 68.66 US cents, down from 69.50 cents early yesterday and down from 81 cents in March. The currency fell as low as 68 cents overnight.

Crude-oil futures for October fell 5% to US$109.71 a barrel in New York yesterday. The price earlier fell to a five-month low US$105.46. The US dollar has gained against the euro to near its highest level in seven months.

"The global backdrop of broadly firmer US dollar should limit bounces in the New Zealand dollar," said Danica Hampton, currency strategist at Bank of New Zealand. The "massive slide" in the price of oil helped stoke the US dollar, she said.

The New Zealand dollar traded at about 82.02 Australian cents and has climbed from less than 80 cents in the past two weeks. The cross-rate has potential to move today with the release of Australian economic figures for the second quarter. Economists expect gross domestic product rose 0.4% in the latest three months for an annual pace of 2.9%.

Australia's central bank yesterday cut its benchmark interest rate by a quarter point to 7%, the first decline in seven years, amid signs of waning economic growth.

"Signs that Australian growth is holding up OK should support the Australian dollar and provide a bit of a prop for the New Zealand dollar," Hampton said.

Australia is New Zealand's largest export market, taking NZ$9.4 billion of shipments in the year ended July 31. Exports rose 31% and accounted for 23% of New Zealand's total overseas sales.

New Zealand's dollar has declined amid expectations the central bank will make further reductions to the official cash rate this year to underpin an economy that shrank in the first half, according to the Treasury.

By Jonathan Underhill



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