Dollar extends slide on falling stocks, weak data

By Paul McBeth

Tuesday 17th February 2009

The New Zealand dollar extended its slide as falling stocks in Europe and Asia, and weak data out of Japan continued to encourage investors to shy away from higher-yielding, or riskier, assets.

Stocks in Europe and Asia tumbled as Japan's economy shrank at an annual 12.7% rate in the fourth quarter, the most since the 1974 oil shock, with recessions in the Europe and the US driving a record drop in exports.

The Dow Jones Stoxx 600 in Europe fell 1.4%, while the MSCI Asia-Pacific Index declined 0.6%. Meantime, the Group of Seven meeting at the weekend concluded the economic slump would continue through 2009. Investors have eschewed risk since US Treasury Secretary Timothy Geithner unveiled his bailout package for the financial sector last week, stoking criticism the plan lacked detail.

Risk aversion has "carried over from the disappointment from the stimulus and the G-7 comment that was a fizzer," said Imre Speizer, currency strategist at Westpac Banking Corp. "Japan's data was a shocker" which saw equity markets fall, putting pressure on the kiwi, he said.

The New Zealand dollar fell to 51.70 US cents from 51.84 cents yesterday, and dropped to 47.42 yen from 47.89 yen. It declined to 79.51 Australian cents from 79.74 cents, and was down to 40.48 euro cents from 40.62 cents.

Speizer said the currency may trade in a range of 51.50 US cents and 52 cents, and will probably follow movements in stock markets this week.

Amid signs that the global downturn is hampering New Zealand economic growth and corporate earnings, Fisher & Paykel Appliances, New Zealand's leading whiteware manufacturer, yesterday said it won't make a profit this year and may have to raise capital as debt surged, surprising the local market with its pessimistic outlook and painting a grim picture for the domestic economy.

Currency traders will be watching central banks this week, with the Reserve Bank of Australia, the Bank of England, and the Federal Open Market Committee releasing minutes of their most recent meetings. The Reserve Bank of New Zealand will release its expectations for inflation in the March quarter next Wednesday.

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