By Candice Zachariahs
Jan. 21 (Bloomberg) -- The New Zealand dollar weakened to a six-year low against the U.S. currency on concern the nation will have trouble funding its current-account deficit as the global slowdown deepens. Australia’s currency also fell.
The currencies slid as the Dow Jones Industrial Average had its worst Presidential Inauguration Day decline and financial shares fell to an almost 14-year low. New Zealand’s dollar has dropped 11 percent since Standard & Poor’s lowered the nation’s foreign-currency credit-rating outlook to negative on Jan. 13, citing risks from its deficit and overseas debt.
“There are concerns about New Zealand’s current-account funding” and that is hurting the currency, said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. The local dollar may decline to 49 cents in January, he said.
New Zealand’s dollar dropped 2.3 percent to 51.85 U.S. cents as of 10:53 a.m. in Sydney, after touching 51.69 cents, the lowest level since December 2002. It declined 2.8 percent to 46.59 yen and earlier fell as low as 46.37 yen, the weakest since September 2001.
Australia’s currency fell 2.1 percent to 64.81 U.S. cents from late in Asia yesterday, after touching a six-week low of 64.57 cents. The currency slipped 2.7 percent to 58.22 yen.
The kiwi, as New Zealand’s dollar is called, briefly lifted off its lows after a government report showed retail sales were unexpectedly unchanged in November from the prior month as income-tax cuts, lower interest rates and fuel prices boosted demand. Retail sales declined 1.3 percent in October, seasonally adjusted, Statistics New Zealand said in Wellington.
Significant Downside
“The data was supportive of a squeeze higher from this morning lows,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. The currency still has “significant downside” and may drop to 43 cents by mid-2009, she said.
New Zealand’s currency also fell against the yen on speculation central bank Governor Alan Bollard will lower benchmark interest rates 100 basis point when policy makers meet Jan. 29, according to a Bloomberg News survey of economists.
A cut to 4 percent is “the minimum,” ANZ National Bank’s Allen said. There is a 12 percent chance of a bigger reduction, according to a Credit Suisse index.
Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ assets. The risk in these so-called carry trades is that currency market moves will erase profits. Australia’s benchmark interest rate is 4.25 percent.
Consumer Confidence
The Australian dollar dropped for a second day as a gauge of consumer confidence fell in January for the first time in three months. The sentiment index declined 2.2 percent to 89.9 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Jan. 12 and Jan. 18 and released in Sydney. The index has held below 100 since February, indicating pessimists outnumber optimists.
The Australian and New Zealand dollars also declined as prices of commodities the two nations export fell. The UBS Bloomberg Constant Maturity Commodity index of 26 raw materials slid the most in a week yesterday. Raw materials account for 60 percent of Australia’s exports and 70 percent of New Zealand’s.
Australian government bonds fell, pushing the yield on the 10-year note up three basis points to 4.02 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.234, or A$2.34 per A$1,000 face amount, to 110.130. A basis point is 0.01 percentage point.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.54 percent from 3.63 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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