Dollar drops below 51 US cents

By Paul McBeth

Wednesday 18th February 2009

The New Zealand dollar dropped below 51 US cents for the first time in two weeks after American stocks tumbled on growing fears the recession is intensifying, and prices for raw materials slumped on dwindling demand.

Global stock markets sank after Moody's Investors Service said it might downgrade banks in Eastern Europe, hurting shares of their parent companies in Europe and the US The Dow Jones Industrial Average fell 3.2% and the FTSE 100 dropped 2.4%. The price for raw materials continued to fall, with the Reuters Jeffries CRB index, a broad measure of commodity prices, falling 3.7% as the recession trims demand for commodities.

"Stocks were hit really hard and that's led to ongoing risk aversion," said Philip Borkin, economist at ANZ National Bank. "A boost to this could see the kiwi drop below 50 US cents."

The kiwi bounced off a two week low of 50.68 US cents to 50.96 cents from 50.83 cents yesterday. It rose to 47.22 yen from 46.80 yen yesterday, and was up to 79.89 Australian cents from 79.37 cents. It increased to 40.42 euro cents from 40.19 cents yesterday.

Borkin said the currency may trade between 50.60 US cents and 51.70 cents. If it breaks the lower level "it may open up the downside significantly", he said.

Pessimism over the global economy is likely to continue, with manufacturing in New York contracting at its fastest recorded pace, signaling the recession is intensifying. The Federal Reserve Bank of New York's general economic index fell to minus 34.7, with readings below zero indicating activity is shrinking.

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