Shrinking NZ economy casts long white cloud over Australian dollar
Marc Moncrief -- March 25, 2006
theage.com.au
EXPOSURE to New Zealand's shrinking economy has tipped the Australian dollar into its deepest trough for 18 months, and analysts expect the slide to continue.
The Aussie fell to US71.04¢ at 5.30pm, down from US71.79¢ at Thursday's close. The Reserve Bank's trade-weighted index, which measures the Australian dollar against a basket of currencies, fell to 60.7, its lowest point since September 2004.
The Aussie swung from a high of US71.52¢ to a low of US70.98¢.
Last week marked its third straight week of falls. In that period, the Australian TWI has lost nearly 4 per cent - the longest sustained fall since May and the largest sustained fall since December 2004.
A weaker currency means importers have to pay higher prices for goods. But exporters - including resource companies responsible for much of the record strength in the Australian sharemarket - appear richer on the domestic market.
In the past month, the Aussie dollar has fallen 4 per cent against the US dollar and 5 per cent against the euro.
"It's developing a bit of a trend that is going to be that much harder to pull out of," said ABN Amro currency strategist Greg Gibbs.
Mr Gibbs said New Zealand's reliance on exports to Australia associated the two countries on international markets, so when New Zealand's currency fell, the effect flowed through.
On Thursday, New Zealand announced a record current account deficit for the year to December 31 of $NZ13.69 billion ($A11.88 billion).
ANZ's head of market research, Warren Hogan, said the bank had lowered its mid-year target for the Australian dollar from US74¢ to US70¢.
He said the Aussie, previously expected to end the calendar year at US70¢, would instead fall to US68¢.
Mr Gibbs said the expectation barely topped the notional minimum support base of US67.75¢.
"High-end deficit currencies across the world, especially those whose interest cycles have peaked, have come under pressure," he said.
Unrest was heightened by the expiry next month of $3 billion in Australian bonds held in Japan.
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