NZ dollar slides below 72 US cents as Dubai World bond default knocks risk appetite

Friday 27th November 2009

The New Zealand dollar slid below 72 U.S. cents for the first time in three weeks after Dubai World, the state-owned investment company for the Gulf State emirate, sought to put off paying its debt, knocking investors’ appetite for higher-yielding, riskier assets.

Dubai World, which has liabilities of US$59 billion, sought a “standstill” agreement from creditors after the collapse of the property development market, and ratings agency Standard & Poor’s placed four Dubai banks on negative watch.

The prospect that British banks may be exposed to the default has raised concerns about the health of the global recovery, and stocks in Europe retreated. Markets in the U.S. were closed due to the Thanksgiving Day holiday.

The fact that it’s day-old news just goes to show “the multi-month real investor nervousness doesn’t take much to spook the taxi drivers out of trading,” said Imre Speizer, markets strategist at Westpac Banking Corp.

“I would be surprised if the kiwi pushed below the 70.80 U.S. cents level as Asia has already reacted to the news.”

The kiwi tumbled to 71.61 U.S. cents from 72.02 cents yesterday and declined to 63.15 on the trade-weighted index, or TWI, a measure of the currency against five major trading partners, from 63.88. It sank to 61.95 yen from 62.58 yen yesterday and was little changed at 78.32 Australian cents from 78.39 cents. It declined to 43.38 pence from 43.53 pence yesterday and was little changed at 47.72 euro cents from 47.78 cents.

Speizer said the currency may trade between 71.30 U.S. cents and 72.20 cents today, and will probably test the top of the range after its sharp fall in the New York session.

The next key level on the downside is 70.80 cents, and “until that breaks, we can’t confidently say the kiwi is back in a downward path.” New Zealand’s trade balance for October comes out today, though Speizer doubts it will have an impact on the currency unless it’s a “shocker” of a number.

The annual trade deficit probably shrank to $970 million from $1.53 billion a month earlier, according to a Reuters survey of economists.

Japan’s Finance Minister Hirohisa Fujii yesterday told reporters it’s time for the government to “vigilant” with respect to the currency and that it would need to take action on “abnormal” movements in the yen.

The yen gained to 86.30 yen per U.S. dollar, a 14-year high against the greenback, from 87.35 yen. It recently traded at 86.51 yen.

Businesswire.co.nz

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