Standard Chartered Says Sell New Zealand Dollar on Commodities

By Lilian Karunungan

Aug. 26 (Bloomberg) -- Investors should sell the New Zealand dollar as the drop in global commodity prices slows the nation's economic growth, according to Standard Chartered Plc.

The New Zealand dollar is likely to fall 1 percent to 69 U.S. cents by year-end, compared with a previous estimate of 71 cents, as the slowdown intensifies, according to Standard Chartered. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has fallen 17 percent from a peak in July.

``The recent correction in global commodities is the straw that has broken the camel's back,'' New York-based currency strategist Mike Moran and Singapore-based Callum Henderson wrote in a research note yesterday. Fund managers should reduce their New Zealand dollar-denominated holdings to ``underweight'' from ``neutral,'' they wrote.

Sales of commodities, including lumber, wool and oil, account for 70 percent of New Zealand's exports. Slowing consumer spending and a plunging housing market tipped New Zealand's economy into a recession in the first half of this year, prompting Reserve Bank Governor Alan Bollard to cut interest rates last month.

The kiwi, as the currency is also known, fell 1.6 percent to 69.72 U.S. cents as of 12:15 p.m. in Wellington from 70.85 cents late yesterday in Asia. The currency has declined 11 percent over the past three months, the worst performer among the 16 most-traded currencies versus the dollar.

Bets

Standard Chartered, which generates three-quarters of its profit from Asia, forecasts the kiwi will trade at 2.16 euros and 73.83 yen by the end of December, against previous estimates of 2.19 euros and 75.90 yen.

Traders are betting the Reserve Bank of New Zealand will lower its benchmark rate by 1.45 percentage points over the next 12 months, according to a Credit Suisse Group index based on interest-rate swaps.

New Zealand's slowing economy will ease inflation over the next two years, cuts in borrowing costs, central bank Governor Bollard said July 30. Bollard cut the official cash rate a quarter-percentage point to 8 percent on July 24, the first reduction in five years.

The nation's gross domestic growth fell 0.3 percent in the three months ended March 31. The central bank may lower the official cash rate to 7.25 percent by the end of the year, Standard Chartered said. Henderson confirmed the contents of the report.

House prices in New Zealand fell 2.2 percent in July from a year earlier, the first annual decline in more than three years, the government valuation agency said on Aug. 11, as record-high interest rates eroded demand for property.

To contact the reporter on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net