KEY POINTS:
The New Zealand dollar's recent slide is set to continue this week as concerns mount that US economic problems could weigh on global growth.
But the local sharemarket yesterday demonstrated resilience in the face of significant losses on overseas markets.
Over the last week the kiwi has lost nearly 2 per cent against the greenback. But the losses have been steeper against other currencies - about 2.8 per cent against the currencies of our top five trading partners as measured by the trade weighted index and more than 3.5 per cent against the rapidly appreciating Japanese yen.
Having closed at US69.16c on Friday, the local unit opened at US68.91c yesterday and ended the session on US68.81c, having fallen as low as US68.22c during the session.
Bank of New Zealand currency strategist Danica Hampton said a surprisingly soft US employment number on Friday fuelled fears the US economy was headed for recession and saw equity markets nosedive and risk aversion rise. That also weighed on carry trade sentiment, forcing the kiwi dollar lower.
The NZ dollar's softer tone was masked when considered against the US dollar, because the greenback itself fell due to economic concerns and the rising probability of US Federal Reserve rate cuts.
On its own trade weighted index, the greenback hit a 15-year low of 79.82 yesterday.
"While the US dollar will likely remain heavy this week," said Hampton, "carry trade currencies should be even heavier".
"We are a high yielding peripheral currency we are really highly dependent on both risk appetite and global growth. I think we're going to be one of the biggest losers in that sense probably against the yen and the aussie."
Friday's soft US nonfarm payroll number saw Wall St's benchmark Dow Jones index shed 96 points or 1.9 per cent and that fed through into a 1.6 per cent loss on the ASX by early yesterday afternoon.
However, the NZSX50's decline was far milder and it closed just 0.3 per cent lower.
Forsyth Barr investment adviser Ken Lister said the local market appeared to be taking the ongoing volatility in US equities increasingly in its stride.
"Because we've seen those swings on Wall St on a regular basis, we're not reacting as much to it as we did when it started," he said.
Lead stock Telecom was again a significant bulwark against deeper local losses - it closed 3c higher at $4.41.
"I think it had been a bit oversold in New Zealand," said Lister, who also believed the company was finding significant support from Australian institutions.
"They're a bit more positive about it than the locals."
There were also encouraging signs from exchange rate sensitive stocks, including Fisher & Paykel Healthcare, which closed 3c higher at $3.58.
However, Lister said while the local market was less prone to knee-jerk reactions to US market gyrations, investors would take cues from more sustained offshore moves.
Earl White, of Bancorp Treasury Services, said conventional wisdom would suggest the prospect of US rate cuts when the Reserve Bank is widely expected to keep rates on hold for the time being should see the kiwi gain against the greenback.
"But at the moment economic fundamentals are being completely overwhelmed by this nervousness about any kind of investment away from home," he said.
"In an atmosphere like that, the New Zealand dollar doesn't attract too much inflow. You'd have to say that nervousness is going to continue for some time yet."
Meanwhile, in the last two days the NZ dollar has hit a one-year low of A83c against the aussie, taking its losses on that cross to 9 per cent since the US credit market turmoil first swept over currency markets in late July.
Hampton said Australia's brighter economic outlook and the fact that the Reserve Bank of Australia had indicated it might need to make further tightening whereas the RBNZ looked like it had finished raising paved the way for further falls against the aussie.
FALLING DOLLAR
* Fresh US equity market losses will force the kiwi dollar lower as carry trades are unwound, currency watchers say.
* However, the local sharemarket yesterday largely resisted the negative sentiment from Wall Street
* The prospect of further Reserve Bank of Australia rate increases while the RBNZ sits tight are likely to push the kiwi below the one-year low against the aussie it reached in recent days.
