Dollar gains as US dollar sinks on downturn

By Paul McBeth

Friday 9th January 2009

The New Zealand dollar gained as further evidence of a prolonged recession in the US drove the greenback down against most major currencies.

US retailers including Wal-Mart Stores, the world's biggest, tumbled on Wall Street after saying earnings would miss forecasts or posting weaker sales. US non-farm payrolls figures, due out on Friday in the US, may show the world's biggest economy shed 523,000 jobs last month. Crude oil and copper fell on concern the economic slump will hurt demand.

"Soft US data and renewed concern about the US economic outlook weighed broadly on the US dollar," said Danica Hampton, currency strategist at bank of New Zealand.

The kiwi jumped to 59.37 US cents from 58.46 cents yesterday, and was up to 54.19 yen from 53.67. It increased to 43.29 euro cents from 43.11 cents, and rose to 83.67 Australian cents from 83.62 cents.

The kiwi dollar may trade between 59 US cents and 60.30 cents today, said Imre Speizer, currency strategist at Westpac Banking Corp. With the non-farm payrolls, "there probably will be a bad number, which should see a decrease in the US dollar."

"There's still positivity around the Aussie and Kiwi," he said, referring to the Australian and New Zealand currencies by their colloquial names.

He predicts the New Zealand dollar will push up to between 61 US cents and 63 cents and the Australian dollar will go beyond 72 US cents in the next two weeks, before weak data at the end of the month in both countries starts driving the currencies lower.

The Reserve Bank of New Zealand will review the official cash rate on January 29, and is expected to continue the steepest series of cuts to the rate since its inception in 1999. Governor Alan Bollard has slashed the rate 325 basis points to 5% since July. Falling interest rates will reduce returns for investors in high-yielding assets, and deter investors from buying the kiwi.

The RBNZ's actions come amid concerted worldwide efforts by central banks to cut interest rates and protect economies from the global credit crisis. The Bank of England cut its benchmark rate by 50 basis points to 1.5%, the lowest level in its 315-year history. The kiwi rose to 39.08 pence from 38.79 pence yesterday.

www.businesswire.co.nz

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