Dollar little changed as swine flu bolsters greenback, yen

Tuesday 28th April 2009

The New Zealand dollar was little changed as uncertainty about the potential swine flu pandemic bolstered support for the greenback and yen as investors sought the safety of the world’s biggest currencies.

Wall Street slipped as the prospect of a global pandemic weighed on airlines and hotels, pushing the Standard & Poor’s 500 index down 1%.

The euro declined as comments from European Central Bank officials indicated the region’s central bank was prepared to use quantitative easing if necessary, while the yen and greenback were bolstered as investors eschewed equity markets on the swine flu threat.

Recent comments from ECB member Nout Wellink said the bank should lower the benchmark rate below 1%.

“Fears about swine flu are keeping global equity markets skittish,” said Danica Hampton, currency strategist at Bank of New Zealand. “In 2008, the World Bank estimated that a flu pandemic could cost US$3 trillion and may result in a nearly 5% drop in world GDP.”

The kiwi dropped to 56.41 US cents from 56.51 cents yesterday, and gained to 54.69 yen from 54.59. It rose to 43.36 euro cents from 43.01 cents. The currency may trade between 56.20 US cents and 57.10 cents today, said Philip Borkin, economist at ANZ National Bank, as traders wait for more information about the swine influenza.

The Reserve Bank will review the official cash rate on Thursday and economists predict it will cut the OCR 50 basis points to a record low 2.5%. If Governor Alan Bollard decides on a smaller 25 point cut, he may be “more explicit” in his statement on future rates cuts, which may be influenced by the threat of a pandemic, Borkin said.

The kiwi dollar climbed to 79.60 Australian cents from 79.09 cents yesterday. New Zealand’s closest neighbour and biggest trading partner faces the loss of nearly A$1 billion in exports as General Motors Corp. scraps its Pontiac brand, which Holden Australia uses to rebrand its cars for the American market.

GM will cut 21,000 factory jobs as part of its final offer to exchange bonds for equity to cut US$27 billion of debt and avoid bankruptcy. The Australian dollar dropped to 70.93 US cents from 71.43 cents yesterday.

The National Bank business outlook, a key indicator of business confidence, comes out tomorrow and will give a snapshot of the state of the economy ahead of the Reserve Bank review the following day.

Businesswire.co.nz

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