NZ dollar headed for second straight weekly loss as risk appetite dims

Friday 4th September 2009

The New Zealand dollar is headed for its second straight weekly loss as investors eschew higher yields amid more uncertainty about the speed of the global economic recovery.

Japan’s yen strengthened 0.7% to 92.43 per U.S. dollar as investors returned to so-called safe-havens amid uncertainty crept back into central bankers’ outlooks for the international recovery. The European Central Bank held its benchmark rate at an expected 1% yesterday, and President Jean-Claude Trichet said it was too early to unwind its policy settings and the Euro-zone faces a “bumpy road ahead.” The world’s largest economy probably shed 225,000 jobs last month, according to Reuters’ data. The Labor Department will release its non-farm payrolls report on Friday in the U.S.

“There’s plenty of nervousness about the general economic recovery in the markets,” said Philip Borkin, economist at ANZ National Bank. Investors are “pretty jittery” and safe haven assets such as the yen and gold have gained on the gloomier outlook, he said.

The kiwi slipped to 67.72 U.S. cents from 67.80 cents yesterday and fell to 62.72 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 62.66. It was little changed at 62.72 yen from 62.66 yen yesterday, and increased to 47.48 euro cents from 47.40 cents. It declined to 80.62 Australian cents from 80.81 cents yesterday.

Borkin said the currency may trade between 67.30 U.S. cents and 68.20 cents today and will probably consolidate ahead of next week. With the U.S. markets closed on Monday due to a public holiday, trading will probably be quiet until Tuesday, he said.

The Reserve Bank of New Zealand makes its monetary policy statement next week, and economists predict Governor Alan Bollard will hold interest rates at a record-low 2.5%, reiterating the message that the official cash rate will remain at or below current levels until late next year.

Still, economists predict Bollard will point to tentative signs of recovery in the New Zealand economy and will boost rates 105 basis points in the coming year, according to an index on interest-rate swaps compiled by Zurich-based Credit Suisse AG.

Finance ministers of the Group of 20 nations will meet in London this weekend to discuss a global response to the economic crisis, and economists will be looking for any comment around potential exit strategies.

Leaders of the G-20 nations will gather later this month and a public statement will be more likely to come from that meeting, Borkin said.

Businesswire.co.nz

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