Dollar declines as Wall Street stages late slide

By Paul McBeth

Thursday 26th February 2009

The New Zealand dollar fell after Wall Street staged a late retreat, reflecting weak home sales data and dividend cuts at insurance companies, stoking traders to eschew high-yielding, or riskier, assets.

US home re-sales plummeted 5.3% for the month of January even though falling prices made them more affordable, signaling the housing crisis is set to continue and helping a decline in US equities.

Weak sentiment in Eastern Europe continued with the ratings service Standard and Poor's downgrading Ukraine's long- and short-term foreign currency credit rating to CCC+. Fears of a deepening global recession encouraged currency traders to eschew risk in favour of the greenback.

"Risk is still the main concern," said Philip Borkin, economist at ANZ National Bank. "We're just waiting for some bad news - the next couple of days could be the circuit-breaker."

The kiwi fell to 50.86 US cents from 51.87 cents yesterday, and dropped to 49.48 yen from 50.29 yen. It declined to 78.73 Australian cents from 79.20 cents yesterday, and decreased to 39.94 euro cents from 40.35 cents.

Borkin said the kiwi may trade between 50.63 US cents and 51.69 cents today, as it continues to enjoy some level of support. The currency is still receiving support from uridashi bond holders, with some rolling over their investments, he said.

The domestic economy is expected to show ongoing fears about the global slump, when the National Bank Business Survey comes out today. "December's survey was dreadful (as was the Q4 QSBO, released mid-January) and if the weakening in the global outlook since then is anything to go by, February's update will look at least as bad," said BNZ currency strategist Danica Hampton.

The New Zealand economy began shrinking at the start of 2008, falling into its first recession since 1998, and the Treasury said it may have entered a fifth quarter of contraction.

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