By BRIAN FALLOW
WELLINGTON - The Government and the Reserve Bank both attracted blame yesterday as the New Zealand dollar continued to slide.
By early afternoon it hit US45.4c, a full cent lower than its level in local trading late on Wednesday, although it retraced half of that by late afternoon.
Part of the reason for the kiwi's slide this month is simply that it is not the US dollar.
"A lot of currencies are weak against the US dollar [including the euro and the Australian dollar] and that, perhaps, is more a reflection of the over-valuation of the US dollar than any fundamental problems with other currencies," said Salomon Brothers global fixed income managing director David Scott.
The strength of the US dollar does not explain away the New Zealand dollar's tumble over the past two days, which has taken it to a 15-year low of 52.3 on the trade-weighed index.
Westpac's general manager New Zealand financial markets, Stephen Moir, said offshore investors did not believe the Reserve Bank should be raising interest rates. The recovery was not robust enough.
If, as Reserve Bank governor Don Brash suggested on Wednesday, the current account deficit improved to 5 per cent of GDP by next year from 8 per cent now, the currency would bounce hard, Mr Moir said.
"But in the meantime we are seeing no support at all and we still have a big overhang from the current account, so it just goes down day by day."
Finance Minister Michael Cullen's reminder on Tuesday of the dismal state of the current account was cited then as one reason for the dollar's fall.
An Auckland foreign exchange dealer said some recent Government moves had added to negative sentiment towards the kiwi, such as the "foreigners need not apply" decision on the Sealord stake.
When the Government announced on Tuesday it was reserving for a pan-Maori trust one of the four blocks of radio spectrum up for auction, within 10 minutes he had received a wave of selling orders."And because there are not a lot of buyers around, the moves can be exaggerated. Volumes are a third to a half of what they normally are," Mr Moir said.
The Bank of New Zealand's head of market, Tony Cakebread, said: "The move lower by the kiwi has caught most people by surprise. Exporters have already taken out a lot of [forward] cover for this season at US48c or 49c levels, in anticipation that the kiwi would recover as the current account redressed itself and the export-led growth story continued."
Those calculations remained fundamentally sound, he said.
"It is possible to see light at the end of the tunnel, but right now ... exporters are waiting for what they believe will be still better opportunities before they start extending their levels of cover." Mr Cakebread said.
Govt, Reserve Bank cop blame for kiwi's slump
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