Greenback falls on credit rating fears; Kiwi, Aussie gain

Wednesday 13th May 2009

The US dollar fell after a New York-based think-tank flagged the prospect of the world’s largest economy losing its top credit rating, raising concern such a move could undermine the world’s reserve currency.

America’s triple-A credit rating is “undeserved” due to the nation’s “fiscal irresponsibility”, according to an article in the Financial Times by David Walker, chief executive of the New York-based Peter G. Peterson Foundation, an organization committed to increasing the public’s awareness about America’s fiscal challenges.

The US has enjoyed a top credit rating since 1917, but “it is unclear how long this will continue to be the case,” Walker said.

Among warning signs are concerns raised by the Chinese Premier and People’s Bank of China head over “America’s longer-term credit worthiness and the value of the dollar” the report said.

Higher yielding currencies including the New Zealand and Australian dollars gained after the report.

The US dollar weakened to 1.3693 per euro from 1.3644 earlier today, and dropped to 96.19 yen per dollar from 96.33 yen. The New Zealand dollar gained to 60.86 US cents from 60.33 cents earlier today and the Australian dollar rose to 76.90 US cents from 76.47 cents.

The US dollar has “come off” after the Walker report appeared on the FT website, said Danica Hampton, currency strategist at Bank of New Zealand.

“The kiwi was under a little selling pressure” this morning, but the news of a potential downgrade for the US pushed it higher, she said.Comments by Federal Reserve Chairman Ben Bernanke affirming the status of the US dollar as the world’s reserve currency and former chair Alan Greenspan on the improvement in financial markets seem to have been ignored, Hampton said.

Chinese retail data out today could weigh on sentiment after the world’s fourth-largest economy posted weak trade figures yesterday.

Hampton predicted the kiwi would trade between 59.90 US cents and 60.80 cents today.

“People are quite uncertain” about the state of the global economy, and the New Zealand dollar will probably be volatile today, she said.

The Australian Federal government yesterday unveiled its budget forecasting a cash deficit widened to A$57.6 billion, or 4.9% of gross domestic product, from A$32.1 billion the previous year.

In separate statements, analysts from rating agencies Standard & Poor’s and Moody’s said they were comfortable with the country’s triple-A rating, the Sydney Morning Herald reported.

The kiwi rose to 79.16 Australian cents from 78.86 cents this morning, and gained to 58.50 yen from 58.12 yen. It increased to 44.40 euro cents from 44.20 cents this morning.

The New Zealand government will unveil its budget on May 28, and both the Prime Minister and Finance Minister have reiterated the need for the country to retain its credit rating.

Businesswire.co.nz

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