Dollar little changed, may head lower on risk aversion

By Paul McBeth

Thursday 12th February 2009

The New Zealand dollar was little changed and may head lower as investors eschew risk amid concern US fiscal stimulus and bank rescue plans won't be enough to revive the global economy.

A day after US stocks tumbled over 4%, Treasury Secretary Timothy Geithner told Congress he needs time to work out the details of his US$2 trillion proposal to shore up the financial sector.

Meantime, Democratic House and Senate leaders have almost reached an agreement on the economic stimulus plan, which is reported to be US$789 billion, lower than the US$838 billion bill approved by Senate this week and the US$819 billion agreed by Congress last month.

Currency traders are returning to the relative havens of the US dollar and yen as the uncertain conditions discourage investment in higher-yielding, or riskier, assets.

US lawmakers have responded to the economic meltdown "in dribs and drabs" and are "probably going to keep adding to it," boosting uncertainty for investors, said Imre Speizer, currency strategist at Westpac Banking Corp. "This encourages risk averse behavior" and would see the kiwi pushed down, he said.

The kiwi fell to 52.26 US cents from 52.52 cents yesterday and dropped to 47.22 yen from 47.26 yen. It was up to 40.66 euro cents from 40.45 cents yesterday.

The New Zealand dollar increased to 80.20 Australian cents from 80.05 cents, having broken the 80 cent barrier for the first time in over two weeks. Speizer said the Australian dollar may weaken as Japanese investors sell assets denominated in the currency and repatriate their funds.

He said the New Zealand dollar may trade between 52.10 US cents and 52.90 cents, with more risk on the downside, while investors wait for greater certainty over the US bank bailout.

The currency also came under pressure after China's worse-than-expected trade figures out yesterday showed imports plunged by a record 43%. New Zealand exports $2.5 billion worth of goods to China, making it the nation's fourth-largest trading partner.

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