WSJ: NZ Dollar Down Late, Recovers From 9 Month Low; Bonds Weaker
WELLINGTON, (Dow Jones)--The New Zealand dollar ended mildly weaker Wednesday, having largely recovered from a sharp drop when Wall Street initially tumbled before staging a "spectacular" late turnaround.
The Kiwi almost made up all lost ground after it fell as low as US$0.6563, its lowest since mid-August.
RBC Capital Markets foreign exchange strategist Sue Trinh expects further pressure on the Kiwi with fund managers preferring the safety of the U.S. dollar.
"We'd expect the net balance to be weighted toward buying U.S. dollars amongst global portfolio managers. That should ultimately cap the Kiwi into the end of the month. It suggests fading rallies."
She said Wall Street's spectacular reversal after falling around 3% in the morning "doesn't look as though it was based on anything other than positioning." So a retest of Wednesday's lows for the New Zealand dollar is likely before month-end.
Trinh said New Zealand data, such as dairy giant Fonterra's bullish forecasts for its 2010-2011 production season published Tuesday, had tended to be supportive of the currency but that these were being swamped by global moves.
"Further wild swings in currencies and equities are likely as European debt issues and other geopolitical issues increase risk aversion levels," said ANZ Bank Senior Dealer Alex Sinton.
He said a weaker currency would place New Zealand's economic recovery "on a better footing and should be viewed as a longer term positive."
The debt market had a relatively quiet session with the turnaround in equities providing the lead. Swap rates rose between one and 1.5 basis points while bonds weakened, particularly two-years bonds.
"Things settled down in the equity and currency markets," said a Wellington-based bond trader. "Relative strength coming through in the equities bought everything to a halt. The focus is on the equity market and everything else trades off that; if the equity markets remain supportive it will bring risk back on the table."
-By Simon Louisson, Dow Jones Newswires; 64-4-471-5990; simon.louisson@dowjones.com
