Dollar falls as Wall Street weakens on earnings concern

By Paul McBeth

Wednesday 8th April 2009

The New Zealand dollar fell as Wall Street declined amid concern companies are preparing to post weak first-quarter earnings, erasing optimism and encouraging investors to eschew high-yielding, or riskier, assets.

The Dow Jones Industrial Average sank 2.3%. Alcoa Inc., the largest aluminium company in the US and the first company on the Dow to report its results, posted a quarterly loss of US$497 million as prices tumbled. Profits for companies on the Standard and Poor's 500 Index probably fell 37% in the first quarter according to estimates from more than 1,700 analysts compiled by Bloomberg.

"Global sentiment is the main driver at the moment - it might be weak for a few days more," said Imre Speizer, currency strategist at Westpac Banking Corp. "Last night's fall also felt the lingering effect of the NZIER report" which showed company activity sank to its worst level since at least 1970, he said.

The New Zealand dollar fell to 57.40 US cents from 57.61 cents yesterday, and fell to 80.81 Australian cents from 81.06 cents. It dropped to 57.55 yen from 57.80 yen yesterday, and declined to 43.23 euro cents from 43.40 cents.

Speizer said it may trade between 57 US cents and 58 cents today, and will probably fall a little lower. "No-one's suggesting the kiwi has miles further to go" but it's very difficult to determine whether the trough has been reached, he said.

The kiwi dollar diverged from its Australian counterpart, which was little changed against the greenback after the Reserve Bank of Australia cut its benchmark rate 25 basis points to 3%, matching New Zealand's, and articles by RBA commentators Terry McCrann and Alan Mitchell speculated the central bank might have reached the bottom of its easing cycle.

The Australian dollar fell 71.02 US cents from 71.02 cents yesterday.

Reserve Bank of New Zealand Governor Alan Bollard is expected to cut the official cash rate on April 30 to a new record-low. Bollard embarked on the steepest series of cuts to the benchmark rate in July, slashing 525 basis points to 3%. Bank of New Zealand economists predict a 0.5 percentage point cut to 2.5%, with an eventual trough of 2%, said currency strategist Danica Hampton.

Comments from our readers

No comments yet