NZ dollar slides amid downbeat global outlook from WTO, risk aversion

Friday 13th November 2009

The New Zealand dollar slid lower today amid a gloomier outlook for growth from the head of the World Trade Organisation, which damped investors’ appetite for higher-yielding, riskier assets.

WTO Director-General Pascal Lamy questioned the sustainability of the current global recovery six months to a year from now, and added to the general negative sentiment amongst investors.

Sentiment for the U.S. dollar was boosted by U.S. Treasury Secretary Timothy Geithner telling members of the Asia Pacific Economic Cooperation group in Singapore a strong currency was important to recovery of the world’s largest economy, and that currencies should be “market-oriented” based on their economic to stimulate growth.

President Barack Obama will meet with his Chinese counterparts after the APEC summit next week, and is expected to discuss currencies.

The kiwi dollar unwound yesterday’s gains “as risk appetite was tempered after there was a fall in equity markets and the WTO director-general was a bit downbeat on the global recovery,” said Mike Jones, strategist at Bank of New Zealand.

“One of the more interesting themes developing is that China may appreciate the yuan next year” which would take some of the burden of the greenback’s weakness from currencies such as the kiwi, he said.

The New Zealand dollar slid to 73.26 U.S. cents from 73.92 cents yesterday and declined to 65.58 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.80. It fell to 66.19 yen from 66.30 yen yesterday and rose to 79.39 Australian cents from 79.19 cents.

It declined to 49.28 euro cents from 49.34 cents yesterday, and dropped to 44.20 pence from 44.58 pence. Jones said the currency may trade between 72.75 U.S. cents and 74 cents today, with the big event in Europe being release of the Euro-zone’s third-quarter gross domestic product data.

“It had a strong result in the second quarter, and people are looking reasonably closely to see if that’s sustainable – currencies will take their direction from that,” said Jones.

The drop-off in global sentiment saw stocks on Wall Street decline as the price for commodities fell.

The Chicago Options Board Exchange’s Volatility Index, referred to as a fear gauge for Wall Street which measures the cost of insuring put options on the Standard & Poor’s 500, climbed 4.2% to 24.22.

Businesswire.co.nz

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