NZ dollar slips toward 71 US cents as Dubai talks down bailout of Dubai World

Tuesday 1st December 2009

The New Zealand dollar drifted back toward 71 U.S. cents as concerns about investment company Dubai World reemerged after the Dubai government talked down a potential bailout for the outstanding debt.

Director General of Dubai’s finance department Abdulrahman al-Saleh said “creditors need to take part of the responsibility for their decision to lend to the companies,” hosing down suggestions the debt would be completely underwritten by the government. Stocks in Europe and on Wall Street edged lower as the comments burst their earlier optimism that the United Arab Emirates central bank would make extra liquidity available for foreign investors and Abu Dhabi officials said they would “pick and choose” which elements of debt to underwrite.

“There are still some nervous jitters out there” and hedge funds and investors aren’t keen to take on more risk in the final month of the year having already secured decent returns, said Khoon Goh, senior markets economist at ANZ National Bank. “Risk appetite is not really returning in a big way” and the kiwi dollar drifted lower as a result, he said.

The New Zealand dollar dropped to 71.37 U.S. cents from 71.65 cents yesterday and dropped to 63.43 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 63.56. It slipped to 61.56 yen from 61.68 yen yesterday and declined to 78.10 Australian cents from 78.22 cents. It was little changed at 47.58 euro cents from 47.63 cents yesterday and inched higher to 43.45 pence from 43.41 pence.

Goh said the currency may trade between 71.05 U.S. cents and 72.15 cents today as it waits for the Reserve Bank of Australia monetary policy review this afternoon. The markets are expecting a 25 basis point rate hike to 3.75%.

“People will be watching to see whether the RBA signals it will continue to push on with its hikes,” Goh said.

Traders will also be keeping an eye on the Chinese PMI when it’s released today, while Australian PMI and building report are also out today.

Fonterra’s online auction takes place today in the U.S., and the price of milk powder is expected to extend its gains, having already surged 88% since July.

The dairy exporter’s global trade managing director Kelvin Wickham isn’t expecting prices to ease until European and American farmers begin producing milk around March/April next year.

Businesswire.co.nz

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