Kiwi dollar's wild ride
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By DAVID HARGREAVES - BusinessDay.co.nz | Tuesday, 07 October 2008 |
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The New Zealand dollar went on a wild ride overnight as panicking overseas investors grabbed their money out of the Kiwi currency and took it closer to home in response to yet another wave of falls on global sharemarkets.
During the night the Kiwi sank to its lowest level against the Japanese currency in nearly six years and it hit a two-year low against the American dollar.
The slide in the Kiwi currency started yesterday afternoon as Asian share markets started to drop sharply. This was then made worse as European markets fell heavily.
From a local close of US65.15c the currency dropped like a brick, reaching a low of US61.7c before bouncing back a little. Against the yen it fell from 67 yen to a low of 62 yen.
BNZ currency strategist Danica Hampton said there had been "carnage" overnight.
"Markets have been volatile in the past six months. This isn't unprecedented volatility, I guess in the scheme of things, but it was very dramatic moves."
Hampton said the wave of selling in the Kiwi dollar had been caused by investors looking to take assets closer to home.
"When you've got risk aversion dominating you tend to see repatriation of assets. A lot of funds under management are held by Japanese and US investors. So in the flight to quality or repatriation we do tend to see the US dollar strengthen and the Japanese yen strengthen."
Despite the size of the falls overnight, Hampton said the level of the Kiwi dollar now was not inconsistent with medium term expectations. The BNZ had been forecasting a rate of US62c by the end of the year, so the Kiwi had just got to that level a bit sooner than expected.
Hampton expected there may be some gains in the Kiwi today.
"Given the magnitude of last night's drop I think we are due a bit of consolidation."
She thought, however, that any bounces in the currency would be limited, given the fact New Zealand's economy is slow and our interest rates are now dropping.
A short time ago the Kiwi had recovered to US63.7c.
