New Zealand’s dollar will fall at least 4 percent to the lowest level since 2002 against the U.S. currency because of the risk the nation’s credit rating will be downgraded, according to Commonwealth Bank of Australia. Standard & Poor’s last week revised the outlook on New Zealand’s AA+ foreign-currency rating and said it may be cut should the current-account deficit and overseas debt damp growth. Commonwealth, Australia’s biggest bank, also lowered estimates for the euro and British pound after S&P cut sovereign ratings for Spain and Greece, and the U.K. government embarked on a second rescue package for the country’s banks. “The risk of downgrades will weigh on these currencies as their economic fundamentals deteriorate,” Richard Grace, chief currency strategist at CBA in Sydney, said in an interview today. “In New Zealand’s case, there’s a pretty high risk that rating agencies do downgrade New Zealand following the May budget, with the timing of the downgrade occurring between June and August.” The New Zealand dollar will drop to 51 U.S. cents by the end of March, a level last seen in December 2002, CBA forecast in a report today. The kiwi will trade at 57 cents by the end of the second quarter and recover to 65 cents by year-end, the bank said. Against the Australian dollar, the currency will fall to NZ$1.2549 by March 31 and NZ$1.2807 by June 30. ‘Stopped Short’ New Zealand’s currency dropped 0.5 percent to 53.36 U.S. cents as of 11:50 a.m. in Tokyo from 53.65 cents yesterday, after a government report showed consumer prices declined in the fourth quarter, adding to signs the central bank will cut its benchmark interest rate to a record low next week. It traded at NZ$1.2459 per Australian dollar. The euro fell to $1.3042 from $1.3069 yesterday. The pound dropped to $1.4301 from $1.4420, after touching $1.4248, the lowest level since March 2002. Europe’s single-currency will slide to $1.30 by March 31, CBA said, revising an earlier call for $1.42. The pound will trade at $1.45 by the end of the first quarter and $1.50 in the three months ending June, compared to previous estimates of $1.55 and $1.60. “Our end-quarter forecasts for the New Zealand dollar and pound have stopped short of reflecting an actual downgrade,” wrote Grace. There is a “high risk” that ratings agencies issue a warning on the U.K.’s sovereign outlook and downgrade New Zealand, he said. “Should these events occur the NZD and GBP currencies are likely to be trading lower than what we have forecast.” U.K. Prime Minister Gordon Brown yesterday authorized the Bank of England to buy 50 billion pounds ($73 billion) in assets and the Treasury to guarantee hundreds of billion pounds of securities hurt by turmoil in financial markets. The measures build on October’s 50 billion pound bank recapitalization program, which includes a 250 billion pound bank credit line. S&P yesterday lowered Spain’s AAA sovereign rating by one level to AA+. S&P cut Greece’s rating one step to A- on Jan. 14.

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