Dollar heads for biggest weekly slide in almost two months

Friday 5th June 2009

The New Zealand dollar is headed for its biggest weekly decline in almost two months as traders gauge the scope for a cut to the official cash rate next week which would erode the yield appeal of the currency.

The kiwi has fallen 3.3% so far this week, its biggest slide since sinking 4.1% in mid-April. Reserve Bank Governor Alan Bollard will reduce the OCR to a record-low 2.25% on June 11, according to economists in a Reuters survey.

Longer-term mortgage rates have remained stubbornly high, while the kiwi dollar’s gains, to an eight-month high earlier this week, has snuffed out much of the benefit of higher prices for commodity exports which could help lift the economy out of recession.

“This is the end of the rally since March – from here, we’ll go lower,” said Imre Speizer, currency strategist at Westpac Banking Corp. “There’s a strong possibility the kiwi might reestablish a downward move” towards the mid-50 US cents level, he said.

The kiwi dropped to 63.43 US cents from 63.62 cents yesterday, and slipped to 61.30 yen from 61.43 yen. It gained to 79.04 Australian cents from 78.84 cents yesterday, and declined to 44.73 euro cents from 44.83 cents.

Speizer said the currency may cap any gains at 64 US cents today, and will move towards 61.30 cents in the next few weeks. Next week’s monetary policy statement by the Reserve Bank could be the catalyst for the kiwi to fall to this level, he said.

“We’re almost guaranteed to pick a surprise,” he said. If the central bank holds rates steady at 2.5%, the kiwi may rise, and if the governor cuts rates it should fall, he said.

The central bank slashed rates to a record low in April, and Bollard said interest rates would remain at a depressed level until late next year. The strength in the kiwi has held back the export-led recovery desired by the central bank, the New Zealand Institute of Economic Research said in its quarterly prediction this week.

Fonterra Cooperative Group announced an opening forecast payment for the 2010 season of $4.55 per kilogram of milk solids, a 13% decline on this season, and blamed the soaring dollar for its lower estimate. Speizer said people don’t seem to be well-hedged for the resurgence in the currency, and look like they were taken by surprise.

Businesswire.co.nz

Comments from our readers

No comments yet