KEY POINTS:
Battered currency markets are intently watching to see what happens to the New Zealand dollar today as a wave of foreign held securities denominated in New Zealand dollars matures.
Bank of New Zealand currency strategist Danica Hampton said the kiwi could face a crunch time when $2.5 billion worth of the securities mature, compared to the average of monthly maturities closer to between $800 million and $900 million.
For the whole of the coming month $3.65 billion of debt was maturing, Ms Hampton said.
"The significant concentration of debt maturing in the next couple of weeks suggests some downside risks to the NZD if Japanese retail appetite starts to falter," she said.
BNZ chief economist Tony Alexander said the overall impact was likely to be some downward pressure on the kiwi dollar, with the risk being that the amount of new bonds issued would not offset those maturing.
But much of that could already have been factored into the market, he said.
"So it's really impossible to say if the kiwi dollar will in fact fall once we see these things mature, or if the markets have already got ready for it."
Last week risk-averse traders vigorously unwound carry trades, in which investors borrow cheaply in low-yielding currencies such as the yen to buy higher-yielding assets, such as the New Zealand dollar.
These trading shifts pummeled high-yielding currencies such as the NZ dollar, which slid 10 per cent against the yen, and the Australian dollar, which fell 9.6 per cent against the yen in the largest weekly decline since October 1998.
During the week the NZ dollar fell as much as 12 per cent against the greenback, starting last week around US74.50c and at one point on Friday night falling below US66.50c. It did rebound and by 8am today was at US69.75c.
Ongoing concerns about a meltdown in global credit markets and escalating risk aversion had triggered violent selling of the kiwi against the yen, Ms Hampton said.
During the past week much of that selling had been from Japanese retail accounts.
The kiwi had swiftly reversed its losses overnight on Friday after the US Federal Reserve cut its discount rate -- the rate at which the Fed is prepared to lend funds to banks -- by 50 basis points to 5.75 per cent, helping relieve some concerns about the slump in credit markets and US stock markets climbed rapidly.
The strong rebound in global equity markets reinvigorated appetite for carry trade currencies, such as the kiwi.
"Next clues for the currency will come from how Asian stock markets and Japanese investors respond to the Fed's action to soothe credit crunch concerns," Ms Hampton said.
Asian stock markets were hammered on Friday and had the potential to stage a bit of a recovery. If Asian stock markets did start to recuperate that should provide a positive tone for the NZ dollar against the greenback and yen.
Prime Minister Helen Clark said today the Treasury had adviced her "it can go either way with international markets at the moment".
"Fundamentally the Treasury is saying that New Zealand is in a good position to deal with the volatility at the present time. Our fundamentals are sound," she told Breakfast on TV One.
Helen Clark said dairy prices were high and there were other positives.
"A lot of things have been going right and certainly the exporters will have a spring in their step this week with where the dollar is at the moment -- even though its still well above its post float average high.
"Look our economy has run well but we are a little cork in a big ocean out there and it's just important to keep strong Government fiscal management, good economic management going."
The PM said petrol prices had been cushioned by the high dollar.
"It's just a question of how it plays out over the medium term."
EXCHANGE RATES
Reuters currency rates at 8.00am today:
NZ dlr/US dlr US69.75c
NZ dlr/Aust dlr A87.39c
NZ dlr/euro 0.5173
NZ dlr/yen 79.73
NZ dlr/stg 35.22p
- NZPA
