By Brian Fallow
WELLINGTON - Reserve Bank governor Dr Don Brash's comments on Wednesday were more the trigger than the reason for the dollar sell-off that followed, market-watchers said yesterday.
The kiwi fell a cent against the United States dollar after Dr Brash's reported comments to Parliament's finance and expenditure committee and the release of weak trade figures. It has also reversed its 2c rise against the Australian over the previous week.
ANZ Bank treasury economist David Drage said Dr Brash was just stating the obvious in answering an MP's question on prospects of a credit downgrade by saying Standard and Poor's had given New Zealand a negative outlook since September 1998.
But it illustrated how vulnerable the kiwi dollar remained.
"Broad commodity price indices are off their lows but not charging ahead, which is a drag on commodity currencies like ours. Added to that are ongoing current account balance of payment concerns, and a bit of political uncertainty ... with a reasonably high probability of a change of Government."
The kiwi's vulnerability to a correction had been increased by its rise against the Australian since the middle of last week.
Bank of New Zealand treasury economist Peter Jolly said: "That [rise in the Aussie cross rate] didn't make an awful lot of sense when you take account of New Zealand facing a very large current account deficit, and an election. So a lot of short-term proprietary positions and weak positions were unwound [on Wednesday]."
Mr Jolly said there was disinvestment from New Zealand going on for both global and domestic reasons.
Sell-off shows kiwi's fragility
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