N.Z. Dollar Trades Near 11-Month Low as Investors Exit Euro

By Tracy Withers

Aug. 11 (Bloomberg) -- The New Zealand dollar fell to an 11-month low as an armed conflict between Russia and Georgia prompted investors to sell the euro and buy U.S. dollars.

Georgia withdrew troops from South Ossetia after four days of fighting with Russian forces, while warplanes from another region Abkhazia attacked Georgian positions. The U.S. dollar surged to a five-month high against the euro, dragging the New Zealand dollar lower for a fifth day.

``The market is digesting all this news from Georgia and that is weighing on the euro in very light trading,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``The U.S. dollar is going to stay firm and that will help the New Zealand dollar head lower.''


New Zealand's currency bought 70.12 U.S. cents at 10:06 a.m. in Wellington from 70.45 cents in late New York trading Aug. 8, when the currency fell as low as 69.83 cents, the weakest since Sept. 11, 2007.

The U.S. dollar rose to $1.4939 to the euro from $1.5005 in New York late last week.

Russian troops entered Ossetia in what it said was a response to Georgia's assault on Russian citizens. Georgia withdrew its troops after mounting casualties, an Interior Ministry spokesman said yesterday.

CNN reported that the Russian Black Sea fleet has been mobilized and that Russian troops attacked an airport at Tbilisi, the Georgian capital.

Escalating Military Action

``The escalation of Russia's military action in Georgia will do little to help sentiment toward the euro,'' said Hampton. The single European currency has been falling since European Central Bank President Jean-Claude Trichet last week acknowledged that the European economy is slowing.

New Zealand's dollar will come under pressure as investors realize that major currencies are over-valued against the U.S. dollar, said Hampton.

Last week, New Zealand's Treasury Department said the economy was probably in a recession in the first half of 2008 and won't start growing until the fourth quarter. The central bank last month cut interest rates for the first time in five years and is expected to lower borrowing costs by 1.5 percentage points to 8 percent within a year, according to a Credit Suisse Group index based on swaps trading.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net