Dollar falls to six-year low amid global equity rout

By Paul McBeth

Tuesday 7th October 2008

The New Zealand dollar tumbled to a six-year low against the US dollar and declined versus the yen as a global stock rout prompted investors to exit high yielding or riskier trades.

European stocks fell, sending the region�s benchmarks down more than 7% after Germany salvaged a rescue plan for Hypo Real Estate and BNP Paribas SA, France�s biggest lender, agreed to buy Fortis� operations in Belgium and Luxembourg, replacing a previous failed bailout.

�The credit crunch has spread across the pond,� said Khoon Goh, senior economist at ANZ National Bank. �The yen will continue to benefit.�

The kiwi fell to 63.15 US cents from 65.15 cents, and earlier sunk as low as 61.70 cents, the weakest since December 2002. It fell to 66.84 yen from 67.60. It gained against the euro, after the European Union�s currency fell to a 13-month low $1.3456 in the biggest drop for nine years.

The FTSE dropped 7.9% while the DAX slumped by 7.1%. The Dow Jones Industrial Average closed 6.4% lower, as did the Standard & Poor�s 500 Energy Index.

The financial crisis stoked fears of prolonged weakness in the global economy, which may slow the revival of New Zealand�s growth. The economy is forecast to climb out of recession in the final quarter of 2008 as the central bank deepens its rate cuts and the currency falls.

�The combination of a sharp slowdown in New Zealand�s growth, further RBNZ interest rate cuts and deteriorating terms of trade� will drive the kiwi lower, said Danica Hampton, currency strategist at Bank of New Zealand. She forecasts the currency will reach 62 US cents by year end and 60 cents in the first half of 2009.

Goh said the kiwi dollar will continue to face �huge� volatility, with four to five cent ranges in a week �not unusual.�

He doesn�t expect the kiwi dollar to rally strongly against the euro. �Currencies are like a beauty pageant, trading one versus the other� and the New Zealand dollar is on a steady trend downward, he said.

Traders will be watching today for the Reserve Bank of Australia�s decision on interest rates, amid expectations it will cut the benchmark rate of New Zealand�s biggest export market by 50 basis points 6.5% to revive economic growth.

BusinessWire.co.nz

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