Dollar extends gains for fourth day as US dollar plummets

By Paul McBeth

Thursday 18th December 2008

The New Zealand dollar rose for the fourth day in a row, reaching its highest in a month, as the US dollar plummeted on the Federal Reserve's decision to cut US interest rates to a record low.

The Fed cut its benchmark interest rate target band to between zero and 0.25%, spurring the biggest slide against the euro since the 15-nation's debut in 1999, and a 13-year low against the yen. The Dollar Index, a gauge of the US currency against six trading partners, fell 11% to a two-and-a-half year low. The kiwi has gained 6.5% against the US dollar since the start of the week.

"The kiwi is in the love camp at the moment," said Imre Speizer, currency strategist at Westpac Banking Corp. The Fed's cut would see the US dollar weak for "quite a while."

The kiwi rose to 59.22 US cents from 58.19 cents yesterday, and was up to 51.98 yen from 51.54 yen. It increased to 84.13 Australian cents from 83.85 cents yesterday, and leveled off to 41.20 euro cents from 41.25 cents.

Speizer said the kiwi may trade between 59.50 US cents and 58 cents today. He predicts the currency will extend its gain in the New Year.

The Bank of Japan meets tomorrow, and the strength of the yen is putting the central bank under pressure to join the US in cutting its benchmark rate to zero. Governor Masaaki Shirakawa has indicated his cautiousness over cutting the bank's rate, but has not ruled it out as a possibility.

Any rate cut by the Japanese central bank would be "token", said Speizer. He said the bank needs to intervene to weaken the yen effectively.

In New Zealand, the government will today announce the state of its financial books, which is predicted to show a sharp deterioration since the pre-election economic and fiscal update in November. Still, Speizer said the overwhelming influence on the kiwi is the weak US dollar.

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