NZ dollar drops as global stocks tumble, commodity prices fall

Friday 7th November 2008

The New Zealand dollar fell as a global stocks slump and weakening commodity prices dimmed investors' appetite for higher-yield, or riskier assets declines.

Stocks fell in Europe and the U.S. after the International Monetary Fund predicted a recession in the U.S., Japan and the Euro region, the first simultaneous contraction of the major economies since WWII. Prices for oil and metals fell, Toyota halved its profit forecast and the Bank of England slashed its benchmark interest rate by 1.5 percentage points. The Dow Jones Industrial Average sank 4.6%

"The dollar is trading off the back of global equities," said Philip Borkin, economist at ANZ National Bank. "It's going to depend on how low the Dow goes."

The kiwi dollar fell to 59.14 U.S. cents from 59.92 cents yesterday, and dropped to 57.85 yen from 58.78 yen. Against the Australian dollar, it slipped to 87.86 cents from 88.14 cents.

Borkin said the kiwi may trade as low as 58.50 U.S. cents today.

Investor confidence has dimmed with the release of poor U.S. economic data, and "rather nasty" predictions are being made for American non-farm payroll numbers, Borkin said.

The number of people in the U.S. getting unemployment benefits has jumped to the highest level since 1983. Adding to the gloomy outlook, the IMF revised down its 2009 forecast for global growth to 2.2%.

Aggressive interest rate cuts by the Bank of England and the European Central Bank failed to quell concerns about a global recession.

In New Zealand, more weak data is expected next week with the quarterly retail trade survey likely to show its third contraction in a row.

Borkin said the currency could weaken if tomorrow's general election doesn't immediately show a clear winner.

Paul MacBeth, Businesswire.co.nz

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