Dollar falls a cent on credit rating dip

File Photo / NZ Herald

The New Zealand dollar fell a US cent in a matter of minutes when credit rating company Standard & Poor's changed the outlook on the country's long term currency rating.

The long-term foreign currency credit rating was affirmed at AA plus but the outlook was changed to negative from stable. The outlook change implies a one in three chance of downgrade in the medium term.

The NZ dollar fell to NZ77.28c from US78.29c on the news but recovered to be US77.48c by 5pm. It was US77.91c at 8am and US77.49c at 5pm on Friday.

Westpac currency strategist Imre Speizer said the news was a shock and a major development for the market. He had been calling the NZ dollar higher this week but said that was now not likely.

"Rating agencies do two things. They can downgrade. A step back is putting you on negative watch and a step back from that is negative outlook.

"A negative outlook is not as bad as a negative watch but you've been put on notice. It is saying that you are vulnerable now to a downgrade," he said.

S&P said the outlook revision on the foreign currency rating reflected its recognition of the risks stemming from a projected widening of external imbalances in the context of the country's weakened fiscal flexibility.

"New Zealand's vulnerability to external shocks, arising from its open and relatively undiversified economy, also raises risks to the country's economic recovery and credit quality," said sovereign ratings credit analyst Kyran Curry.

The NZ dollar had risen to a 2-1/2-month high against its Australian counterpart during the weekend after markets were rattled by Chinese moves to tighten reserve requirements for banks.

The NZ dollar fell to be A77.97c at 5pm, down from A79.10c late on Friday and A78.90c at 8am today.

Worries about European sovereign debt eased after Irish Finance Minister Brian Lenihan said the country would seek a bailout from international lenders, ending weeks of speculation that the country would need help to prop up its banks and help it secure cheaper state funding.

The bailout - which would be the second rescue package for a euro zone country this year - would be less than 100 ($176) billion euros, he said, but did not give details of the likely cost.

The NZ dollar was buying 0.5627 euro at 5pm today from 0.5691 at the same time on Friday. It was at 64.59 yen from 64.65, while the trade weighted index was at 69.08 from 69.44.

- NZPA