Dollar falls; risk aversion encourages support for greenback

By Paul McBeth

Friday 13th February 2009

The New Zealand dollar extended its decline as investors continued to flock to safe haven currencies such as the greenback after US jobless claims reached record level and doubts swelled about the fiscal stimulus measures.

The US Labor Department reported that 4.8 million people are now collecting unemployment benefits, the highest on record. US stock markets initially tumbled on the news, but pared losses after higher-than-expected retail sales were reported for January, with the Dow Jones Industrial Average down 0.1%. Investors continued to eschew higher-yielding assets in favour of haven currencies like the US dollar and yen as the uncertainty of the global economy weighs on their appetite for risk.

"In general, there's more risk aversion," said Philip Borkin, economist at ANZ National Bank. "There's still disappointment with the financial support" package announced by US Treasury Secretary Timothy Geithner, and the uncertainty has investors "pretty depressed."

The kiwi fell 51.89 US cents to 52.02 cents yesterday, and has tumbled 3.8% since the start of the week. It rose to 46.98 yen from 46.84 yesterday, and declined to 79.89 Australian cents from 79.95 cents. It dropped to 40.42 euro cents from 40.49 cents.

Borkin said the kiwi may trade between 51.69 US cents and 52.55 cents today, and faces clear downward pressure in the medium term. With the current level of risk aversion, he predicts the dollar could fall below 50 cents "reasonably soon".

The New Zealand dollar may face some downward pressure depending on Reserve Bank Alan Bollard's comment at a press conference this morning, where he is expected to provide an update on the New Zealand economy.

Retail sales for December out this morning are expected to fall 1.1%, according to a Reuters survey of economists. Electronic transactions fell 0.6% in January to the lowest level since October 2007. If consumer spending over the holiday period fell more than expected, the kiwi may push lower as sentiment for it continues to dwindle.

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