Dollar may rise on hopes for bail out of US auto industry

By Paul McBeth

Monday 15th December 2008

The New Zealand dollar may rise on optimism the US will find a way to bail out the auto industry, helping prevent the collapse of companies like General Motors which would lead to widespread job losses and may deepen the global economic slump.

The Bush Administration is considering tapping its 'TARP' bank bailout fund to finance a rescue package for automakers. New York University Professor Nouriel Roubini told Bloomberg television that a bankruptcy filing by General Motors or Chrysler LLC would extend the economic slump that's already so severe that "there's not going to be a recovery of growth until 2010."

Prices for oil and copper fell after the US Senate failed to pass the automakers' rescue package last week, putting pressure on currencies like the New Zealand and Australian dollars that rely on exporting.

"Commodity currencies shouldn't fare too badly, provided the automakers deal goes through," said Imre Speizer, currency strategist at Westpac Banking Corp. "There's a smidgeon less risk aversion."

The kiwi rose to 54.56 US cents from 54.51 cents on Friday, and was up to 49.87 yen from 49.25 yen. It fell to 82.23 Australian cents from 83.34 cents on Friday, and was down to 40.84 euro cents from 41.02 cents.

Speizer said the kiwi may trade "at the top of a tight range" between 54.20 US cents and 54.80 cents today as traders await the start of stock trading in the US this week.

Traders are also awaiting the release today of the Economic Survey of Manufacturing for the September quarter, which may help sharpen forecasts for the pace of the economy in the latest three months. Third-quarter GDP is due to be released next week.

Rio Tinto Group, the world's third-largest mining company, is reportedly drawing up contingency plans to raise capital that would allow it to take part in future industry consolidation. Last week it announced 14,000 redundancies to help reduce its debt by US$10 billion as demand for metals wanes. Workers at New Zealand's aluminium smelter in Invercargill will have to wait until next year to find out if their jobs are safe.

In other signs that governments are moving to shore up weakening economies, China will increase its money supply by 17% next year to boost domestic consumption after November trade figures out last week showed imports plummeted 17.9% and exports declined 2.2%, their first fall in seven years.

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