Shock S P change sends kiwi falling

Photo / Dean Purcell

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

The rating itself 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 US77.28c from US78.29c on the news but recovered to be US77.48c by 5pm. It was 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'd 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's saying you're 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 due to 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 its economic recovery and credit quality," said sovereign ratings credit analyst Kyran Curry.

The NZ dollar had risen to a two-and-a-half-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.

Worries about European sovereign debt eased after Irish Finance Minister Brian Lenihan said the country would seek a bailout of less than €100 billion from international lenders.

The NZ dollar was buying €0.5627 and 64.59 at 5pm yesterday.

- NZPA