Bloomberg News

N.Z. Dollar Slumps as Central Bank Holds Rates; Aussie Advances

September 15, 2011

Sept. 15 (Bloomberg) -- New Zealand’s dollar fell against the majority of it most-traded counterparts after Reserve Bank Governor Alan Bollard held interest rates at a record low, citing a risk that the global economy will slow “sharply.”

The currency, nicknamed the kiwi, weakened amid speculation the central bank may delay its next interest-rate increase until next year. Australia’s currency ended a five-day losing streak against the greenback after the European Central Bank said it will lend U.S. dollars to euro-area banks in coordination with other central banks, easing concern the region’s sovereign-debt crisis will worsen and increasing appetite for risk.

“The kiwi has moved down as a kneejerk response to the statement, which was a little more dovish than expected,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “The RBNZ has dropped its rates track and is now closer to what swaps markets were pricing. Swaps had already priced in a rather dire global situation.”

New Zealand’s dollar was little changed at 82.33 U.S. cents at 3:25 p.m. in New York, compared with 82.32 cents yesterday. The kiwi earlier dropped as much as 1.4 percent. It traded at 63.10 yen, compared with 63.07 yen, and fell 0.9 percent to NZ$1.6867 per euro, from NZ$1.6713.

Australia’s dollar rose 04 percent to $1.0325, from $1.0283. It gained 0.4 percent to 79.12 yen, from 78.80.

Global stocks and riskier currencies rallied after the ECB said it will coordinate with the Federal Reserve and other central banks to offer three separate three-month loans to ensure euro-area banks have enough of the U.S. currency through the end of the year. The Standard & Poor’s 500 Index increased 1.6 percent.

‘Medium-Term Effect’

New Zealand’s “exchange rate is significantly penalizing some activity in the traded sector, hurting some New Zealand firms, and that’s a medium-term effect not a short-term effect,” Bollard told reporters in Wellington today after leaving the official cash rate at 2.5 percent.

Seven of 10 economists surveyed by Bloomberg News predicted Bollard will keep the official cash rate at the record low rate until at least January. Last week, 13 of 15 expected higher borrowing costs by December.

The Australian dollar, known as the Aussie, has lost 1.9 percent during the past week, the second-worst performance after the Norwegian krone among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar slipped 0.2 percent.

--With assistance from Allison Bennett in New York and Mariko Ishikawa in Tokyo. Editors: Greg Storey, Dennis Fitzgerald

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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