Dollar pares gain as US stocks fall

By Paul McBeth

Tuesday 24th February 2009

The New Zealand dollar pared gains as stocks in the US fell amid fears of a prolonged global recession.

The US downturn will be the worst in at least three decades, with unemployment predicted to rise 9% by the end of the year, according to a survey of economists by the National Association for Business Economists.

The Dow Jones Industrial Average dropped 3.3%. Fears of continued economic weakness offset a rally in banks after the federal government hosed down reports it would nationalize Citigroup while pledging further aid for troubled lenders.

"Talk of nationalisation was seen as reasonably positive for equities and riskier currencies, but this was short-lived," said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Autralia. "When the US markets opened, traders returned to the US dollar."

The New Zealand dollar fell to 50.95 US cents from 51.55 cents yesterday, and dropped to 48.26 yen from 48.38 yen. It declined to 79.01 Australian cents from 79.06 cents yesterday, and rose to 40.04 euro cents from 39.95 cents.

Kelleher said the kiwi may trade between 50.75 US cents and 51.25 cents today as it struggled to break out of a familiar range. "It's waiting for a circuit breaker," he said.

The announcement of a $530 million of uridashi issuance helped underpin the kiwi dollar. "The kiwi dollar-yen has got some stability, and the cross is on the up," lending wider support for the dollar, Kelleher said.

Citigroup has proposed the US government take a greater holding in the company, transforming its preferred shares into common stock, the Wall Street Journal reported.

This could potentially see the government hold up to 40% of the financial group. Regulators including the Federal Deposit Insurance Corp., the Federal Reserve, and the Treasury Department have said lenders should remain in private hands.

Comments from our readers

No comments yet