I tend to agree, in the longer term, but now you are barking up the wrong tree:
NZ dollar tumbles to one-month low on S&P warning
WELLINGTON, Jan 13 (Reuters) - The New Zealand dollar dived over 4 percent to a four-week low on Tuesday on the threat of a downgrade to the country's foreign-currency debt rating and a survey showing a dive in business confidence.
The kiwi fell almost a cent to a low of $0.5626 after rating agency Standard and Poor's lowered New Zealand's foreign currency ratings outlook to negative from stable and warned of growing imbalances affecting the economy. [nWEL411681]
"This is an extremely bearish development for the New Zealand dollar," said Sue Trinh, a senior currency strategist at RBC Capital Markets.
The kiwi's losses compounded an earlier drop when a survey showed business confidence fell to equal a 33-year low in December, while firms' views of their own outlook sank to the lowest in almost 30 years. [nWEL287004]
"It's looking very, very ugly out there," said BNZ senior markets economist Craig Ebert.
At 0400 GMT the kiwi was at $0.5638/44, over 4 percent lower than the $0.5885/88 level of late local trade on Monday.
The New Zealand currency has also struggled amid a drastic series of interest rate cuts from the central bank which has eaten in to the kiwi's once-hefty yield attraction.
"We are going deeper into recession, we're not emerging from recession, therefore New Zealand's cash rate has to go a lot lower," said Deutsche Bank chief economist Darren Gibbs.
The central bank has cut rates four times since July by a total of 3.25 percentage points to a five-year low of 5 percent to help stimulate the struggling economy.
Most analysts see rates falling to 3.5 percent by mid-2009. The next rate review is on Jan. 29.
Standard and Poor's said a credible fiscal plan for the medium-term, combined with the easing of external pressures, was needed if a downgrade was to be avoided.
New Zealand's Finance Minister Bill English reacted to the S&P warning by saying New Zealand was committed to a fiscal plan to correct the current account deficit, and any fiscal stimulus had to be balanced against the consequences of increased debt levels. [nWLF001227]
The yield on 6-month government bonds fell as much as 20 basis points as the market factored in more rate cuts to try to lift the sluggish economy. At the long end, the benchmark 10-year bond yield, which moves inversely to its price, closed a basis point lower at 4.50 percent.
Thinly traded 5-year credit default swaps (CDS) -- insurance-like contracts that protect against defaults and restructuring -- were unchanged despite the S&P move, with one trader quoting a steady rate of 100/125 basis points. (Reporting by Mantik Kusjanto; Editing by James Thornhill) ((mantik.kusjanto@thomsonreuters.com; +64 4 471 4232; Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net)) Keywords: MARKETS NEWZEALAND DOLLAR |
