Dollar may fall as Wall Street slides on Chrysler bankruptcy

Friday 1st May 2009

The New Zealand dollar may fall as US stocks slid on the news Chrysler LLC, America’s third-largest automaker, filed for bankruptcy protection, while domestically, investors continued to digest the central bank’s cut to the official cash rate and indication that rates would stay low until late next year.

Chrysler sought Chapter 11 bankruptcy after it failed to meet a government deadline to prepare a robust restructuring plan that would net it more government aid, and is reported to have signed an alliance agreement with Italian automaker Fiat SpA, according to Corriere della Serra.

The Reserve Bank of New Zealand yesterday slashed interest rates to a record low 2.5%, and stated rates would remain “at or below the current level” until the latter part of 2010. The kiwi dollar fell 0.2% last month, and may extend its losses as offshore support for the currency, which traditionally offers high yields, declines.

“Equity markets in the US fell away and was partly responsible” for the fall-off in the currency, said Imre Speizer, currency strategist at Westpac Banking Corp. “The Reserve Bank’s action has left markets bearish” towards the currency, he said.

The kiwi slid to 56.45 US cents from 56.85 cents yesterday and was little changed at 55.67 yen from 55.68 yen. It rose to 77.83 Australian cents from 77.71 cents, and slipped to 42.69 euro cents from 42.76 cents.

Speizer expects the kiwi will break below 56.40 US cents today as it heads toward 55.50 cents. He said it may trade between 55.80 cents and 56.80 today, and Westpac retains a “cautious negative bias” towards the kiwi.

In Japan, the central bank held its monetary policy rate steady at 0.1%, and decided against expanding its quantitative easing measures, despite downgrading its economic forecasts for the Japanese economy over the next year.

The Bank of Japan now expects gross domestic product to shrink 3.1% in 2009, but hopes its fiscal stimulus will lift it out of recession. The yen sank to 98.62 yen per US dollar from 97.94 yen yesterday.

Meanwhile, European Central Bank President Jean-Claude Trichet has ordered all ECB council members to remain silent on its next review of monetary policy, as conflicting statements have caused volatility in the currency. The euro fell to US$1.3218 from US$1.3294 yesterday.

Businesswire.co.nz

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