NZ dollar extends decline to three-month low ahead of current account data

Tuesday 22nd December 2009

The New Zealand dollar extended its decline for a seventh straight day amid continued unwinding of short positions in the U.S. dollar and as investors await data that’s expected to show the nation’s current account deficit shrank in the third quarter.

The kiwi dollar fell to its lowest level against the greenback in three months. The U.S. currency found favour in recent weeks after the Federal Reserve’s near-zero rate policy encouraged investors to use the currency to fund carry trades. The carry trade is where investors take out low interest loans to invest in higher-yielding assets. New Zealand’s current account deficit probably shrank to 3.9% of gross domestic product, according to a Reuters survey, as the country’s deepest recession since 1991 forced importers to run down their inventories as consumer demand dried up.

“It looks like the U.S. dollar is still being bid, and as a result we’re seeing the kiwi and the Aussie come under downward pressure – the key support for the kiwi is at 70.50 U.S. cents, thought he question is for how long,” said Khoon Goh, senior markets economist at ANZ National Bank, referring to the trans-Tasman currencies colloquially. The current account “headline number should be very very good, and that could help provide some near-term support for the New Zealand dollar.”

The kiwi dropped to 70.60 U.S. cents from 70.73 cents yesterday, and was little changed at 64.74 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 64.71. It gained to 64.38 yen from 64.03 yen yesterday, and edged down to 80.10 Australian cents from 80.14 cents. It was little changed at 49.43 euro cents from 49.46 cents yesterday, and pushed up to 43.97 pence from 43.85 pence.

Goh said the currency may trade between 70.35 U.S. cents and 71.35 cents today with its fortunes still linked to the direction of the greenback.

The main piece of local data for the kiwi is New Zealand’s third-quarter GDP out tomorrow. Economists are broadly in line with central bank Governor Alan Bollard’s bullish stance on growth, predicting 0.3% expansion in the three months through September.

The European Commission expects the Euro-zone economy to grow 0.7% in 2011, though it said the euro is overvalued by 7% to 8%. The euro was little changed at US$1.429 from US$1.4289 yesterday.

Businesswire.co.nz

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