NZ dollar falls as Bollard jawbones soaring kiwi

Wednesday 10th November 2010

The New Zealand dollar fell after the Reserve Bank of New Zealand said the strength of the currency was holding back a rebalancing of the economy.

The kiwi dollar fell to 78.14 US cents after the release of the central bank’s Financial Stability Report from 78.30 cents immediately before hand when Bollard said prolonged strength in the kiwi dollar would make rebalancing of economic activity towards the tradables sector “difficult to achieve.” Though the kiwi has been stable over the past five months on a trade-weighted basis, the past two weeks has been increasingly volatile, and it touched above 70 on the trade-weighted index earlier this week, a level where the RBNZ has previously intervened.

So-called risk sensitive currencies were torn as investors’ appetite for higher yields dimmed amid resurgent fears over European debt, offsetting demand for raw materials, including soft commodities produced by New Zealand. Portuguese and Irish sovereign credit default swap spreads widened to fresh all time highs, with political tensions threatening Ireland’s austerity budget. Still, strong demand for safe haven commodities such precious metals helped support the currency, with the spot price for gold hitting a record high of US$1,422.30 an ounce, before easing back to US$1,402.61.

“There is an ongoing surge in commodity prices driving markets offshore,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand. “It is not just gold and silver being driven higher but soft commodities as well, and the New Zealand dollar tends to track higher on that.”

The kiwi fell to 77.61 US cents, and rose to 77.45 Australian cents from 77.30 cents. It rose to 68.92 on the TWI from 68.91 yesterday, and rose to 63.60 yen from 63.18 yesterday. It rose to 56.39 euro cents from 56.34 cents yesterday, and rose to 48.60 pence from 48.47 pence.

Goh said he expects the euro to dominate attention on the cross-rates in the near future as concerns grow over whether Europe’s deeply-indebted countries will be able to meet their debt obligations.

“I expect the market to shift its focus from the US dollar to the Europe, especially if credit spreads continue to blow out,” Goh said.

Businesswire.co.nz

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