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NZ Dollar Looking Shaky After RB Report

Contributor:
Fuseworks Media
Fuseworks Media

By Simon Louisson of NZPA

Wellington, May 7 NZPA - The New Zealand dollar was perched somewhat shakily below US79c at the close of local trading today after a Reserve Bank report was published stressing risks to the economy and currency.

The kiwi had been trading at US79.25c just before the report's publication and was sold down to US78.80c where it found support amongst Asian traders.

ANZ Bank chief dealer Murray Hindley said the kiwi had been under pressure all session following the report.

"We haven't seen a dramatic selloff, just steady selling across the session."

He suggested it could experience further weakness when the report was digested by US and European traders.

Bank governor Alan Bollard said the kiwi was still high and there was a risk of a sharp fall.

The Reserve Bank also said it was taking special steps to shore up financial system liquidity in case of fresh turmoil on world markets, even though its latest measures may never be used.

The special measures announced are aimed at ensuring enough money is available in the banking system, should fresh turbulence break out.

It expanded the range of securities it will accept for domestic liquidity operations.

Economists said today's statement showed even the Reserve Bank was getting worried about the economic outlook as it stressed a raft of risks facing the economy.

"The message is `brace yourself'," BNZ economist Craig Ebert said.

"It's a long list of concern," said Mr Ebert, who believes Dr Bollard may well start easing rates sooner than the December target.

Goldman Sachs JBWere economist Shamubeel Eaqub said a "housing implosion" combined with stalled household spending and the global credit crunch meant Dr Bollard should start cutting rates now.

ANZ's Mr Hindley said the outlook for the kiwi would depend on whether there was continuing weakness in the economy. Jobs data tomorrow and retail sales data on Friday would be watched closely.

The kiwi held relatively steady on most of its other crosses. Against the kiwi it closed on A83.26c against A83.22c while the trade-weighted index closed on 70.59 from 70.25 yesterday.

The US dollar edged up after a Federal Reserve official said interest rates would eventually need to be raised, highlighting that the Fed may be done relaxing policy after its aggressive run of rate slashes.

NZPA WGT Reuters sml dj

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