New Zealand dollar trades lower

Monday, 06 October 2008

October 06 – Close: The New Zealand dollar traded lower today because the US dollar was strong and forecasts released by New Zealand's Treasury were worse than expected.

"We traded down lower throughout the day," said Jake Soanes, head of financial market sales at Westpac.

The NZ dollar was around US65.95c at 8am and had fallen ahead of Treasury's pre-election economic and fiscal update this afternoon. It took another step lower on the statement and by 5pm was trading at US65.15c from US66.22c at 5pm on Friday.

"The market was picking increased budget deficits but the numbers were a lot bigger than we expected," Mr Soanes said.

The US dollar had also been stronger after the $US700 billion ($NZ1.05 trillion) bailout of the US financial system became law on Saturday NZ time.

But the New Zealand dollar has been rising against the Australian dollar ahead of the Reserve Bank of Australia (RBA) monthly board meeting tomorrow.

The markets have factored in a 50 basis points cut to leave the Australian overnight cash rate at 6.50 percent.

The NZ dollar rose to A86.50c at 5pm from A84.95c at 5pm on Friday.

Mr Soanes said the market was factoring in bigger interest rate cuts in Australia and trades placed by hedge funds were being unwound.

The euro hit a 13 month low against the US dollar today on European financial woes. The NZ dollar was buying 0.4780 euro at 5pm from 0.4784 at 5pm Friday.

Against the yen it was at 67.60 from 69.60. The trade weighted index was 63.39 from 63.86 at 5pm Friday.

The yen soared across the board on Monday as fears about the credit crisis spreading to European banks forced some investors to unwind long-standing carry trades favouring higher-yielding currencies.

Traders said Japanese retail traders with margin accounts, which allow them to make bets on foreign currencies with borrowed funds, were being forced to sell, adding fuel to the steep drop in the Australian dollar and the euro.

The Aussie shed nearly 4 percent to a four-year low of 78.20 yen on top of a nearly 8 percent plunge last week. The euro shed 2.4 percent to a three-year low of 141.59 yen The yen also tends to benefit in times of risk aversion.

- NZPA & Reuters