Dollar slides again as global equities tumble

By Paul McBeth

Friday 6th March 2009

The New Zealand dollar slid back below 50 US cents after global equity markets tumbled on growing fears some major financial institutions may be unable to service long-term debt and China doused talk that it would increase spending.

Moody's Investors Service cut JPMorgan Chase & Co's credit rating outlook to `negative' from `stable,' and will review the long-term debt ratings of Wells Fargo and Bank of America, the three largest US banks, amid concerns rising costs of credit may increase the capital ratio.

Chinese Premier Wen Jiabao quashed speculation that China was increasing its fiscal stimulus plan, saying the nation's 8% target for economic growth this year was achievable. Global stocks slumped on the negative outlook, with the German DAX 30 tumbling 5% and the Dow Jones Industrial Average slipping 3.4%.

"Our currency continues to trade on US equities, which had a pretty bad day, and this fell through to the kiwi" as it slid back below 50 US cents, said Khoon Goh, senior markets economist at ANZ National Bank. The New Zealand dollar's "lack of liquidity" meant it held up reasonably well in the face of poor investor sentiment, he said.

The kiwi fell to 49.90 US from 50.19 cents yesterday, and dropped to 49.06 yen from 49.86 yen. It rose to 78.23 Australian cents from 77.99 cents yesterday, and declined to 39.76 euro cents from 39.86 cents.

The currency may trade between 49.50 US cents and 50.50 cents today as it continues to take its lead from overseas news, Goh said. The next big local event that will impact on the kiwi will be the central bank's monetary policy review next week, where it's likely Governor Alan Bollard will slash the official cash rate 50 basis points to 3%, a new record low.

The move would take New Zealand's benchmark rate below Australia's, adding downward pressure to the New Zealand-Australian dollar cross. The Reserve Bank of Australia held interest rates at 3.25% when it reviewed them last week.

New Zealand's Treasury has forecast the domestic recession extended into the fifth quarter, and when the nation's fourth-quarter gross domestic product figure is released at the end of this month, it's likely to increase the pessimistic outlook. "Bearing in mind the horrible results of our major partners, it could be a real shocker," Goh said.

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