By BRIAN FALLOW
Buying support for the New Zealand dollar was nowhere to be found yesterday as it lost 3.5 per cent of its value against the United States currency.
"When it is moving this fast no one wants to stand in the way," said National Bank chief economist Brendan O'Donovan. "One poor body doesn't slow a freight train."
The latest sell-off has taken the kiwi to 15-year lows against the US dollar, and all-time lows on the trade-weighted index.
As in the currency's plunge in May, dealers attributed it to a combination of US dollar strength and lack of international investor interest in New Zealand, reflecting the gaping current account deficit, stalled economic growth and disaffection with the trend in Government policy.
What triggered the latest fall was the US Federal Reserve decision on Tuesday not to raise interest rates.
"Effectively interest rates are seen as being on hold until at least November and that was seen as positive for the US economy and particularly US equity markets," said HSBC senior economist Grant Fitzner.
Coupled with a weak business sentiment report from Germany, that was enough to see the euro sold off against the US dollar, carrying the Australian and New Zealand currencies with it, he said.
Having shed 1c to 44USc on Tuesday night, the kiwi continued to falling in local trading yesterday to about 43.4c and 49.5 on the TWI.
Late last night it was threatening to breach 43USc.
Dealers said exporters were generally hedged to the max already and were not buying. Importers, on the other hand, generally carried much less hedging, so there were more natural sellers than buyers on the trade side.
As for capital flows, which account for 80 per cent of the dealings on foreign exchange markets, "there is nothing here people want to buy," said BNZ foreign exchange manager Greg Ball.
"I would say we would see the low 40s [US cents] on this run. I believe we will see some sort of equilibrium somewhere between 40 and 45c, but definitely a further move on the downside before we see some upside," he said.
"The current account will drive it. There has to be a fundamental shift so the currency is at a level where offshore people are prepared to fund the current account. We don't believe we are at that stage yet."
Mr O'Donovan said: "You used to have players like [hedge funds] Tiger and Soros come in and say, 'This looks fundamentally cheap. Do a big punt and turn around the direction.' Those guys aren't in the market any more."
Instead, the market was dominated by momentum traders, whose maxim was "the trend is your friend."
Even major corporate transactions, such as the sale of bits of Fletcher Challenge offshore, might have only a temporary effect on the currency. Meanwhile, about $1.6 billion of eurokiwi debt matures next month. While $1 billion of that is believed to be hedged, the rest, held by retail investors who are unlikely to want further exposure to New Zealand, will probably add to selling pressure on the currency.
"A turnaround would require a change in sentiment towards the US dollar," said Citibank dealer Greg Sheridan, "and that could be a long way off - another year or two perhaps."
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