By Candice Zachariahs
Jan. 20 (Bloomberg) -- The New Zealand dollar approached a six-week low after a government report showed consumer prices fell last quarter, giving the central bank more room to cut interest rates to a record low next week.
Australia’s currency also weakened, ending two days of gains, after the European Commission lowered its forecast for the euro-area economy, adding to concern the global slowdown will worsen. Higher interest rates in Australia and New Zealand have made the two nations’ currencies favorites with investors seeking extra yield, helping them reach the strongest in more than 20 years against the dollar in 2008.
“This reinforces the theme that the Reserve Bank of New Zealand will cut rates when they meet,” said Danica Hampton, a strategist at Bank of New Zealand Ltd. in Wellington. “The global backdrop is very heavy. People are keen to sell growth- sensitive currencies like the kiwi,” she said, referring to the currency by its nickname.
New Zealand’s currency slid 3.1 percent, the most in a week, to 53.16 U.S. cents as of 4:31 p.m. in Sydney from late in Asia yesterday. It touched 53.08 cents, near the 52.80 cents it reached last week which was the lowest since Dec. 4. The currency dropped 3.5 percent to 47.91 yen.
Australia’s currency slid 2.7 percent to 65.94 U.S. cents, and dropped 3.2 percent to 59.44 yen.
Rate Cut
RBNZ Governor Alan Bollard will cut the benchmark rate to 4 percent from 5 percent when the bank meets Jan. 29, according to the median forecast of economists surveyed by Bloomberg News. Traders are betting policy makers will slash rates by nearly two percentage points in the next 12 months to spur domestic demand, according to a Credit Suisse index based on overnight swaps.
The consumer-price index declined 0.5 percent last quarter from the previous three months, after increasing 1.5 percent in the previous period, Statistics New Zealand said today.
Risks to the New Zealand dollar are to the “downside,” Hampton said before the release of retail-sales data tomorrow that economists say will show a 1.2 percent decline in November.
“Sentiment towards the kiwi dollar really turned last week,” she said.
Standard & Poor’s revised the nation’s AA+ foreign-currency credit-rating outlook to negative from stable on Jan. 13, citing concern over its current-account deficit and overseas debt.
New Zealand’s currency will fall to 51 cents by March, the lowest level since 2002, due to the risk the nation’s credit rating will be downgraded, according to Commonwealth Bank of Australia. The kiwi will trade at 57 cents by the end of the second quarter and recover to 65 cents by year-end, Richard Grace, chief currency strategist at CBA in Sydney, said in a research note today.
European Slowdown
The economy of the 16 countries sharing the euro will shrink 1.9 percent in 2009, the Brussels-based European Commission said yesterday, revising a November estimate for growth of 0.1 percent. European Central Bank President Jean- Claude Trichet said yesterday economic prospects are “substantially” worse than the ECB predicted just last month.
Australia’s dollar also slipped as the price of oil, the nation’s fourth most-valuable commodity export, dropped below $34 a barrel in New York.
“There’s a more negative outlook globally and oil prices were also weaker,” said Tony Morriss, a Sydney-based senior markets strategist at Australia & New Zealand Banking Group Ltd.
Australian government bonds advanced for the first day in three. The yield on the 10-year note fell six basis points, or 0.06 percentage point, to 4 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.485, or A$4.85 per A$1,000 face amount, to 110.367.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, dropped to 3.68 percent from 3.83.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
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