By STAFF REPORTER and AGENCIES
SYDNEY - The Australian and New Zealand dollars, steady near record lows, may slip further, as the returns offered by US dollar assets draw global investors.
Investors are also fleeing New Zealand and Australian shares, driving down the key indices in both markets by around 1 per cent yesterday to make 2 per cent so far this week. Australia suffered a 1.3 per cent loss to take it back to its lowest level for 12 weeks.
The New Zealand dollar has shed 2.6 per cent of its value in the past two days. The Australian dollar, or aussie, has dropped 1.6 per cent at the same time as it fell to a record low, left stranded as the tide of global funds recedes.
Both have fallen amid surging oil prices, with crude oil prices rising above $US37 a barrel for the first time in 10 years. That increases the risk of inflation as both nations rely on imports for their fuel supplies, and a lower currency means that the cost of oil increases.
There is concern that the New Zealand dollar's slide to record lows may prompt the Reserve Bank of New Zealand to raise its benchmark interest rate, now at 6.5 per cent, in coming months.
The currency has fallen more than 20 per cent against the US dollar this year.
"I wouldn't be surprised if the kiwi fell below US40c by the end of the week," said Greg Ball, head of currency sales at the Bank of New Zealand in Wellington.
"The kiwi's decline has increased the risks of inflation breaking out - the Reserve Bank may be forced to raise rates quicker than it anticipated."
The New Zealand dollar is the worst-performing of 17 major currencies so far this year, slipping 20.7 per cent against the US dollar, while the Australian dollar is down 17.3 per cent over the same time. The euro, down 15 per cent this year, is also at its all time low of US84.40c. Dealers warn it could go lower yet, and may do so this week if a confidence survey in Germany comes out with a disappointing result.
A spike in oil prices which drove Australasian currencies and the euro down overnight faded yesterday when Saudi Arabia indicated it would pump yet more oil if prices threatened to go any higher.
Investors, it seems, are taking note of the performance of US bonds and the strongly growing US economy.
US Government bonds maturing in 10 years and more, for example, have handed investors a 12 per cent gain this year.
Australian 10-year bonds have lost 5 per cent.
Asian sharemarkets were also lower yesterday, reacting to oil prices and a selloff on the Dow Jones in New York.
"Like a beached whale, the Australian dollar continues to suffocate under its own weight," said Greg McKenna, currency strategist at National Australia Bank in Sydney.
"The New Zealand dollar is in a bear market - the US dollar will continue to predominate."
Dealers said there were both overseas and local buyers in the market yesterday to pick the kiwi off its lows, but there was also a suggestion that currency speculators were taking positions.
The Australian dollar was little changed at US54.34c from 54.41 on Monday. It earlier fell as low as 54.10c, the weakest level since it started trading freely in December 1983.
The kiwi was also little changed at US41.35c from 41.43c on Monday. It earlier fell as low as a record US40.74c.
US economic data last week provided further evidence the world's largest economy is slowing gradually with no signs of inflation, which boosts the attractiveness of investments as it reduces the threat of eroding returns.
Consumer prices in the US, the most closely watched gauge of inflation, fell 0.1 per cent last month - the first drop since April 1986, the Labour Department said.
A Merrill Lynch global survey last month showed investors reduced their Australia and New Zealand dollar-holdings to the lowest since February 1999. Foreign investors cut their holdings of New Zealand Government bonds to 39 per cent of those on issue in August, a central bank survey shows, from 51 per cent a year ago.
However, some still see the Australian currency moving higher.
The Government commodity forecaster, Abare, lowered its forecast for the average value of the dollar in 2000-2001 to US60c, compared with a forecast of US63c in the June quarterly report.
In March, Abare forecast a US67c average for the dollar this year. The dollar averaged US63c in 1999-2000.
The New Zealand dollar earlier fell as low as 75.21 Australian cents, the lowest since September 11 against its Australian counterpart. It recently traded at A76.13c from 76.16c yesterday.
Kiwi tipped to slip further
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