Dollar pares gains as US stocks, commodity prices fall

By Paul McBeth

Thursday 8th January 2009

The New Zealand dollar halted its three-day rally as US stock markets fell and prices of commodities dropped as signs the world's biggest economy is shedding jobs heightened investors' aversion to risk.

Private employers in the US cut payrolls in December by 693,000, the most since records began in 2001, according to a report by ADP Employer Services. The Dow Jones Industrial Average fell 2.7% after the data and after Alcoa, America's largest aluminium producer, said it would cut 13,500 workers and reduce output. New Zealand commodity prices, led by pelts, aluminium, wool and dairy products, fell for the fifth month in a row, according to the ANZ Commodity Price Index.

"The pay-roll numbers were a complete shocker," said Tim Kelleher, corporate risk manager at ASB Bank. "The markets are getting beared up in the US, and the prospect of risk aversion is back all of a sudden" which makes higher-yielding currencies like the New Zealand dollar less attractive to investors.

The kiwi fell to 59.38 US cents from 59.55 cents yesterday, and dropped to 54.99 yen from 55.48 yen. It rose to 83.13 Australian cents from 82.72 cents yesterday, and declined to 43.49 euro cents from 43.79 cents.

Kelleher said the kiwi dollar may trade between 58.75 US cents and 59.75 cents today after it failed to break 60.50 cents. "It may be a blip" in the currency's rally, but he said the data to watch will be the US non-farm payroll out on Friday, which will be a good indicator of investor sentiment.

Negativity around the globe is extending its reach into New Zealand with the Westpac McDermott Miller employment confidence index tumbling 17.2 points to 104, the lowest in the history of the series, and nearing the 100 level below which pessimists outnumber optimists. Westpac Banking Corp. senior economist Donna Purdue said the jobless rate may peak at almost 6% this year, from a five-year low of 4.2%.

The New Zealand economy fell into recession last year for the first time since 1999. This prompted Reserve Bank Governor Alan Bollard to embark on the steepest series of cuts to the official cash rate since its inception in 1999 to revive the economy.

Around the world, central banks have been targeting benchmark rates as a means to protect their economies, and when the Bank of England reviews its monetary policy tonight, most economists are predicting the central bank will cut its benchmark rate at least 50 basis points to 1.5%.

www.businesswire.co.nz

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