Dollar tumbles on renewed concerns over recovery

Wednesday 12th August 2009

The New Zealand dollar tumbled 0.8% yesterday as stocks on Wall Street slid on renewed concerns the speed of the global economic recovery won’t be as fast as earlier expected, ahead of the Federal Reserve’s review of monetary policy.

The prospect of an early recovery dimmed after wholesale inventories in the US fell for the tenth straight month and a Rochdale Securities analyst predicted American banks won’t lift their earnings this year and encouraged investors to take profits from recent gains. The Standard & Poor’s 500 index fell 1.3%.

The Federal Open Market Committee will review interest rates in the US on Wednesday in Washington, and while economists aren’t expecting any movement on rates, they will be looking for any hint from policymakers of an exit strategy from near-zero rates and the quantitative easing programme.

The fall in the kiwi “is mainly a reaction to US equity markets and the broker’s downgrade,” said Khoon Goh, senior markets economist at ANZ National Bank. “People are watching and waiting to see what the Fed does.”

The kiwi sank to 66.69 US cents from 67.22 cents yesterday, and retreated to 62.43 on the trade-weighted index, or TWI, a measure of the currency versus a basket of five trading partners, from 62.89. It tumbled to 63.96 yen from 64.99 yen yesterday, and fell to 47.11 euro cents from 47.50 cents.

It was little changed at 80.41 Australian cents from 80.42 cents yesterday.

Goh said the currency may trade between 66.50 US cents and 67.20 cents today as it continues to remain range-bound ahead of the FOMC meeting. The next big local event will be retail sales data out on Friday, and until then, the currency will follow Australian and global news, he said.

Weaker than expected Chinese data added to the uncertainty, as exports from the world’s fourth-largest economy shrank 23% in July from a year earlier and industrial production climbed slower than forecast.

Businesswire.co.nz

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