Dollar holds below 50 US cents after AIG posts record loss

By Paul McBeth

Tuesday 3rd March 2009

The New Zealand dollar held below 50 US cents after American International Group, which insures 100,000 companies, posted a record loss, driving US stock markets to a 12-year low and eroding investor appetite for higher-yielding, or riskier, assets.

AIG posted a fourth-quarter loss of US$61.7 billion, the largest in US corporate history, dragging the Dow Jones Industrial Average below 7,000 for the first time since 1997, as the Obama administration confirmed it would pump an additional US$30 billion into the insurer.

Global equities plunged as fears the financial crisis is escalating continue, with shares in HSBC Holdings slumping 20% after it launched a 12.85 billion pound rights issue, and the FTSE 100 sliding 3.8%. Currency traders continued to eschew high yielding assets in favour of haven currencies like the US dollar.

"Concern about the global economy and financial sectors" is stoking risk aversion, said Philip Borkin, economist at ANZ National Bank. "The New Zealand dollar held up reasonably well, but it's on borrowed time."

The kiwi rose to 49.48 US cents from 49.26 cents yesterday, and increased to 48.28 yen from 48 yen. It was up to 78.14 Australian cents from 77.70 cents yesterday, and climbed to 39.30 euro cents from 39.13 cents.

Borkin said the kiwi may trade between 49.10 US cents and 49.90 cents today as investors await the Reserve Bank of Australia's decision on monetary policy today and Australian fourth-quarter gross domestic product data tomorrow.

The Australian central bank is predicted to cut its benchmark rate by 25 basis points to 3% according to a Reuters survey of economists, and the country's economy is expected to continue growing with GDP forecast to increase 0.1%.

The New Zealand benchmark rate will probably fall below its largest trading partner when Reserve Bank Governor Alan Bollard reviews the official cash rate next week. ANZ National forecast Bollard will slash the OCR by 75 basis points to a new low 2.75%. As interest rates tumble, the currency will lose its appeal to investors seeking higher-yielding assets.

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