Dollar tumbles as global sentiment sours

Thursday 14th May 2009

The New Zealand dollar tumbled 1.7% against the greenback as global sentiment soured on weaker-than-expected retail sales in the US and a dismal outlook for the Eurozone. Stocks on Wall Street sank.

Retail sales in the US fell 0.4% in April, below the expected flat result, as rising unemployment pushes consumers to save their cash. Industrial production in the Eurozone fell 2% in March from the previous month, suggesting first-quarter gross domestic product will have shrunk more than the forecast 2.1%. US equities slid on the growing pessimism, with the Dow Jones Industrial Average down 2.2%.

“The kiwi’s had a pretty good run, but equities let it down,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “It’s likely we’ll see equity weakness for a couple more days” which will probably drag the currency lower, he said.

The New Zealand dollar sank to 59 US cents from 60.04 cents yesterday, and dropped to 56.22 yen from 57.67 yen. It slipped to 78.47 Australian cents from 78.56 cents yesterday, and declined to 43.42 euro cents from 43.97 cents.

Kelleher said the currency may trade between 58.60 US cents and 59.30 cents today. After it failed to break through the 61.40 cent eight-month range yesterday, it will probably struggle to get back up there, and could fall to back to the 200-day moving average of 58.50 cents.

The kiwi rose to around 61 cents yesterday after a Financial Times article by David Walker, chief executive of New York-based think-tank Peter G. Peterson Foundation, raised the prospect of the world’s largest economy having its AAA credit rating downgraded.

Adding to the negative global sentiment, the Bank of predicted the UK economy will continue to contract in coming months before staging a slower-than-expected recovery in 2010.

Businesswire.co.nz

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