NZ dollar falls below 71 US cents as risk appetite wanes, jobs data looms

Thursday 4th February 2010

The New Zealand dollar fell below 71 U.S. cents as risk appetite waned amid ongoing concerns over European nations’ sovereign debt, and ahead of today’s employment data which is expected to show the jobless rate rose to its highest level in almost a decade.

Stocks in Europe and on Wall Street declined amid news Portugal cut a planned debt issue, while Spanish officials said their country’s budget deficits will likely exceed forecasts over the next three years. The Standard & Poor’s 500 index sank 0.5% as data showed the recovery in American services and construction are lagging behind that of manufacturers. The Household Labour Force Survey today is expected to show New Zealand’s unemployment rate rose to 6.8% in the fourth quarter, the highest level since March 2000. A rogue number may cause investors to rethink the timing of central bank rate increases and reassess the strength of the kiwi dollar.

“Any major surprise will have a fall-out for many weeks, with this being the last heavy-duty report until the March Monetary Policy Statement,” said Imre Speizer, markets strategist at Westpac Banking Corp. Unemployment of 6.9% “would spook the market into selling the kiwi and pushing rates lower, while 7% would be highly damaging to the kiwi.”

The kiwi dropped to 70.71 U.S. cents from 71.31 cents yesterday, and dropped to 65.35 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.49. It gained to 64.41 yen from 64.27 yen yesterday, and was little changed at 80.14 Australian cents from 80.09 cents. It inched up to 44.48 pence from 44.42 pence yesterday, and edged down to 50.88 euro cents from 50.92 cents.

Speizer said the currency may trade between 70.40 U.S. cents and 71.40 cents today, and will probably stay in a very tight range barring any surprises from the employment data or Australian retail sales.

“Even though evening sentiment closed modestly negative, there’s not enough there to see the worse momentum in the kiwi push into our Asian session,” he said.

The next main event risk for the kiwi will come tomorrow when the Reserve Bank of Australia explains why it kept its benchmark interest rate at 3.75% on Tuesday. Following that, America’s non-farm payrolls survey will dictate investor sentiment leading into next week.

Businesswire.co.nz

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