Dollar falls below 50 US cents on risk aversion

By Paul McBeth

Tuesday 10th March 2009

The New Zealand dollar fell below 50 US cents as ongoing fears about the global economic climate encouraged investors to eschew higher-yielding or riskier assets ahead of the central bank's monetary policy statement on Thursday.

US stocks slipped as general unease over the state of the economy continued, with the Dow Jones Industrial Average sliding 1.2%. Drug-maker Merck & Co. led the fall, tumbling 8% after it agreed to buy Schering-Plough Corp. for US$41.1 billion. The Reserve Bank of New Zealand will review its monetary policy on Thursday, and economists predict Governor Alan Bollard will cut the official cash rate 50 basis points to 3%.

"It's all about risk appetite" driving the New Zealand currency lower, said Cameron Bagrie, chief economist at ANZ National Bank. "There's a distinct lack of confidence, and a lack of trust" which is causing investors to give up their riskier assets, like the New Zealand dollar, he said.

The kiwi fell to 49.35 US cents from 50.04 cents yesterday, and sank to 48.68 yen from 78.35 yen. It dropped to 77.92 Australian cents from 78.35 cents yesterday, and declined to 39.09 euro cents from 39.59 cents.

ANZ National Bank predicts the dollar may trade between 48.95 cents and 49.95 cents today. The longer it stays below 50 US cents, the more likely it is to head "south", Bagrie said. "The next couple of weeks will be interesting."

The state of Australian business confidence may test the currency when National Australia Bank's February survey comes out later today. Any signs that Australia's economy is deteriorating more than expected will weigh on the kiwi, due to its close links with its trans-Tasman counterpart.

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