Dollar falls on further signs of global slump

Tuesday 13th January 2009

New Zealand's dollar fell to a three-week low on renewed concern about the global economic slump, which has weighed on stocks and driven down prices of commodities.

The Standard & Poor's 500 Index fell 2.3% in New York yesterday on expectations companies will post weaker fourth-quarter earnings. Aluminium producer Alcoa Inc., one of the first major US companies to report, had its first loss in six years - US$1.19 billion - after prices fell and demand slumped. The yen strengthened against the US dollar and the euro as the prospects of prolonged global weakness and falling stocks sapped investors' appetite for riskier assets.

In New Zealand today, the NZIER's Quarterly Survey of Business Opinion today is expected to show companies stayed gloomy in the fourth quarter.

"There's a return to concern about the global economy," said Khoon Goh, senior markets economist at ANZ National Bank. "As we're starting to get some bad, ugly data from the US and Asian countries a sense of reality returns to the global economy."

The kiwi dollar fell to 57.48 US cents from 58.83 cents late yesterday. It fell to 51.25 yen from 53.06 and dropped to 42.94 euro from 43.67.

The dim global outlook has driven down currencies of countries that depend on commodities for their export returns. The Australian dollar slipped to 67.96 US cents from 69.92 cents. Shares have dropped at resource companies including BHP Billiton and Rio Tinto.

New Zealand commodity prices fell for the fifth straight month in December, according to ANZ Bank's survey, released last week. The ANZ commodity price index fell 7.4% to be 24% down in the year.

Goh said the kiwi may trade in a range of 57.30 US cents and 58 cents today. The currency is pricing in a cut to the official cash rate of 75 basis points, he said. The central bank is set to reduce the OCR when it next reviews monetary policy on January 29, having kicked off its steepest easing cycle in July since introducing the rate in 1999.

The VIX index is in bearish territory at 46, Westpac Banking Corp. said in a report, with weakness across most risky-asset classes. "Underlying sentiment is bearish, after an optimistic start to the year," it said.

By Jonathan Underhill

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