NZ dollar falls versus yen, dollar as investors eschew risk

Friday 10th October 2008

The New Zealand dollar fell against the yen and the U.S. dollar as slumping stock markets spurred investors to eschew riskier, or higher-yielding, investments.

The Dow Jones Industrial Average sank below 9000 points after a ban was lifted on short selling on 969 financial related stocks and amid concern the credit crisis will engulf more companies. General Motors slumped 31%. Three Asian central banks cut their benchmark rates yesterday, and the Reserve Bank of New Zealand extended the range of securities it will accept as collateral for loans.

"Risky assets will continue to be shunned by investors," said Khoon Goh, senior markets economist at ANZ National Bank. "The yen will continue to strengthen" against currencies with higher yields.

The New Zealand dollar fell to 60.50 U.S. cents from 62.47 cents yesterday after the Dow Jones plummeted 7.3%. It declined to 60.52 yen from 63.30.

The International Monetary Fund and World Bank have called on the Group of Seven leading industrial nations, who are meeting this weekend, to take an active role in addressing the situation. IMF director Dominique Strauss-Kahn told reporters in Washington that the world is "on the cusp of a global recession."

The markets are focussing on what may be discussed at the meeting, and "will want to see some indication of future plans," said Danica Hampton, currency strategist at the Bank of New Zealand. "Handled correctly, soothing words from the G7 could see further stability return to financial markets next week."

Governor of New Zealand's central bank Alan Bollard rejected calls to cut the official cash rate early, and is satisfied the with levels of confidence in New Zealand's banking sector, according to a statement yesterday. The bank is to review monetary policy on Oct. 23, where it is expected to cut the OCR by as much as 100 basis points, according to some economists.

"The Reserve Bank's point of view is that is doesn't feel the need to inject confidence in the banking sector," Goh said of the bank's decision not to cut rates sooner.

Goh predicts the kiwi currency will trade between 59 and 62.5 U.S. cents today, and will "underperform against the yen."

(Businesswire.co.nz)

Paul MacBeth, Businesswire.co.nz

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