Dollar slips as Cullen airs concern

The dollar fell from its record high yesterday as Finance Minister Michael Cullen said the currency's rise was a "major concern" that would slow the growth in exports.

"The exchange rate remains a major concern, driven mainly by weakness in the United States economy," he said.

"The lagged effect of the high exchange rate is still expected to affect export growth in the future."

At 5pm yesterday, the kiwi was trading at 72.70USc, having hit a fresh high of 73.05USc in the offshore session. On Tuesday, it passed 72.75USc - its highest level since it floated in March 1985.

Cullen said the currency's surge "will cause lower income for exporters and a slowing economy as a result" in the longer term.

Exports such as dairy products, meat and timber make up almost a third of this country's $80 billion economy. The currency's gain of almost 10 per cent last year meant exporters, including giant dairy company Fonterra, did not get all the benefits of surging commodity prices.

In December, the Reserve Bank said economic growth would probably slow to 1.5 per cent by March next year, after accelerating 4.4 per cent in the third quarter of last year.

Traders said the kiwi dollar fell yesterday as some importers took advantage of its gains, selling the currency to buy US dollars to pay for their goods.

"Cullen's comments eased [the currency] back a little bit," one said.

ANZ Investment Bank senior dealer Mark Elliott said the kiwi could slip back to between 72.20USc and 72.40USc, but this would be a short-term correction in the context of a longer-term rising trend - "provided we don't go back through 71.75USc".

He said the kiwi movements yesterday were pretty much dictated by movements in the greenback.

On Tuesday, the greenback posted its biggest daily fall in two months against major currencies as the market seized on reports that South Korea's central bank planned to spread its reserves among a greater variety of currencies.

But it rebounded yesterday after South Korea indicated its plans to diversify its foreign exchange reserves were not new and did not mean it would sell the US currency.

Dealers said the US dollar's buy-back against the yen was also sparked by data that showed a slump in Japanese exports last month, suggesting Japan was struggling after falling into recession for much of last year.

- BLOOMBERG, NZPA