Dollar falls as US retail sales and producer prices decline

By Paul McBeth

Wednesday 15th April 2009

The New Zealand dollar fell as dwindling retail sales and weaker producer prices in the US erased optimism the global economy was lifting itself out of recession, and encouraged investors to eschew higher-yielding, or riskier, assets.

US retail sales fell 1.1% in March, more than the 0.3% slide expected, while producer prices fell 3.5% year-on-year versus 2.2% forecast. The weak data helped contribute to a weak day on Wall Street, where the Standard & Poor's 500 Index slumped 2%. Intel Corp., the world's biggest chip-maker, reported its first-quarter profits slid 55% to US$647 million.

"Equities are still the main driver" of the kiwi, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank. "Risk is off the table again, and there's been a bit of profit taking" which dragged the currency lower, he said.

The kiwi fell to 58.63 US cents from 58.87 cents yesterday, and sank to 57.60 yen from 58.74 yen. It declined to 80.44 Australian cents from 80.78 cents yesterday, and dropped to 43.91 euro cents from 44.25 cents.

Kelleher said the currency may trade between 57.75 US cents and 58.75 cents today having failed to break above the 60 cent mark for the fourth time this year. "It's at the top end of the range heading towards April 30 when the Reserve Bank meets, and there's a risk of the markets building in a bigger cut," he said.

ASB, Westpac Banking Corp., and ANZ National Bank, the country's four major trading banks, forecast central bank Governor Alan Bollard will cut the official cash rate 50 basis points to a record-low 2.5%, while Deutsche Bank is predicting a 0.25 percentage point cut.

Goldman Sachs Group, the US bank which announced a better-than-expected profit for the first three months of this year, aims to raise $5 billion to repay its Troubled Asset Relief Program debt and shed limits on executive pay. If the bank is successful in repaying this debt, it could put pressure on other banks to follow suit irrespective of whether they were ready or not, an analyst told Bloomberg.

Singapore, New Zealand's tenth biggest export destination, said its economy may contract between 6% and 9%, forcing it to lower the trading range for the Singapore dollar for the first time since 2003. The kiwi fell to 87.16 Singapore cents from 88.73 cents immediately before the devaluation. It traded at 88.13 cents yesterday.

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