By Candice Zachariahs
Jan. 21 (Bloomberg) -- The New Zealand dollar fell 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 declined.
The currencies pared losses after a government report showed retail sales in New Zealand unexpectedly stabilized in November, after sliding the previous month. New Zealand’s dollar has dropped 9 percent since Standard & Poor’s last week cut the outlook on the nation’s credit rating to negative, citing concern about 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 0.7 percent to 52.66 U.S. cents as of 5:35 p.m. in Sydney, after touching 51.69 cents, the lowest level since December 2002. It declined 1.3 percent to 47.31 yen and earlier fell as low as 46.37 yen, the weakest since September 2001.
Australia’s currency fell 1.4 percent to 65.27 U.S. cents from late yesterday in Asia, after touching a six-week low of 64.57 cents. It slipped 1.9 percent to 58.65 yen.
The kiwi, as New Zealand’s dollar is called, has dropped to levels that should benefit the nation’s exporters when global markets and prices recover later this year, Finance Minister Bill English said today in an interview at his office in Wellington’s Beehive parliament buildings. He declined to give a forecast for the New Zealand dollar.
Growing Public Debt
“With a country that has got a high current-account deficit and growing public debt, there’s a risk that if we start being seen by debt markets as a risk you can get an exchange- rate drop which will drop everyone’s living standards,” English said. “That’s one of the risks if we get it wrong.”
New Zealand’s dollar lifted off its lows today after a government report showed retail sales were unchanged in November from the prior month as income-tax cuts, lower interest rates and fuel prices boosted demand. All eight economists surveyed by Bloomberg News ahead of the announcement forecast a decline.
“The data was supportive of a squeeze higher from this morning’s 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 added.
Interest Rates
New Zealand’s currency also fell against the yen on speculation the central bank will lower its benchmark interest rate when policy makers meet Jan. 29. Economists predict the rate, currently 5 percent, will be reduced by a percentage point, a Bloomberg survey shows.
A cut to 4 percent is “the minimum,” ANZ National Bank’s Allen said. There is a 20 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.
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.
Cheaper Raw Materials
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 seven basis points to 4.08 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.696, or A$6.96 per A$1,000 face amount, to 109.668. 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 3.6 percent from 3.68 yesterday.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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