New Zealand Dollar Declines on Commodity Prices, U.S. Stocks

By Tracy Withers

Sept. 10 (Bloomberg) -- The New Zealand dollar declined as commodity prices fell and weaker U.S. stock prices prompted investors to spurn higher-yielding currencies.

Crude oil fell to a five-month low and gold, copper and other commodity prices dropped amid expectations global growth will slow. Talks to sell a stake in Lehman Brothers Holdings Inc. broke down, sending U.S. stocks lower and curbing investor demand for currencies such as New Zealand's, where the benchmark interest rate is 8 percent.

``Worries about global growth and a sharp pull back in commodity prices have taken a toll on the New Zealand dollar,'' said Danica Hampton, strategist at Bank of New Zealand Ltd. in Wellington. ``Sharp losses in U.S. equities also sparked risk aversion-inspired selling.''

New Zealand's currency fell to 66.72 U.S. cents at 9:10 a.m. in Wellington from 67.54 cents in late Asian trading yesterday. It fell to 71.36 yen from 73.00 yen.

Crude oil fell to a five-month low in New York and Brent oil in London dropped below $100 a barrel as the Saudi Arabian and Venezuelan oil ministers signaled that OPEC will maintain production levels when it meets in Vienna.

Copper fell to the lowest price in more than seven months on concern that slowing global growth may curb demand for raw materials.

Commodity Exporter

About 30 percent of the New Zealand economy comes from exports, of which more than half are commodities, including meat, dairy products and oil.

The Standard & Poor's 500 index fell 3.4 percent, its biggest drop since February 2007. Lehman led financial shares to their steepest drop since July after talks to sell a stake to Korea Development Bank broke down.

New Zealand's dollar is popular with investors who borrow cheaply in Japan, where the benchmark rate is 0.5 percent, and seek higher yields elsewhere. The trades are risky because profits are determined by movements in two currencies, and traders exit the trades when risk aversion increases.

The currency will become relatively less attractive to those seeking higher yields because Reserve Bank Governor Alan Bollard will probably cut the benchmark interest rate tomorrow, according to all 14 economists surveyed by Bloomberg News. Traders expect the rate will fall to 6.5 percent within a year, according to swaps trading.

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