New Zealand Dollar Trades Near 10-Month Low After Jobs Report

By Ron Harui and Candice Zachariahs

Aug. 7 (Bloomberg) -- The New Zealand dollar traded near a 10-month low after a government report showed the jobless rate rose to the highest in more than two years, boosting prospects for further central bank interest-rate reductions.

The currency weakened for a third day as traders bet the employment data will strengthen the case for the Reserve Bank of New Zealand to cut borrowing costs. Central bank governor Alan Bollard said Aug. 5 that a slowing economy would justify further reductions to the nation's benchmark rate of 8 percent.

``With macro risks rising and rate support waning, we see considerable weakness ahead,'' Ned Rumpeltin, a London-based strategist at Morgan Stanley, wrote in a research note yesterday. The ``New Zealand dollar's future looks difficult as we expect the currency to reflect the state of the economy.''

The kiwi, as the currency is called, declined to 72.08 U.S. cents at 11:24 a.m. in Wellington, from 72.28 cents late in Asia yesterday. It earlier reached 71.65 cents, the lowest since Sept. 19. The currency bought 78.95 yen from 78.51.

Statistics New Zealand said in Wellington today that the unemployment rate rose to 3.9 percent in the second quarter from a revised 3.7 percent in the previous three months. The median estimate of 13 economists surveyed by Bloomberg News was for a jobless rate of 3.8 percent.

Losses in New Zealand's dollar were curbed as the government report also showed employment rose 1.2 percent, or about 26,000 jobs, in the second quarter. Economists had expected the economy would add about 3,300 jobs.

`Considerable Downside Risks'

The Reserve Bank of New Zealand will lower interest rates 1.50 percentage points over the next 12 months a Credit Suisse Group index based on overnight swaps trading. The bank will definitely reduce rates by 0.25 percentage point at its next meeting in September another index showed.

The kiwi ``faces considerable downside risks,'' wrote Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney, in a research note yesterday. ``In line with our forecasts for a substantial easing cycle that will see cash rates at 6.5 percent by mid 2009,'' the New Zealand dollar will fall to 66 U.S. cents by the middle of next year, Trinh wrote.

The RBNZ lowered borrowing costs for the first time in five years on July 24. A benchmark rate of 8 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, has made the country's assets popular with international investors seeking higher yields.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Candice Zachariahs in New York at czachariahs1@bloomberg.net