NZ dollar sinks on Christchurch quake, Libyan unrest

NZ dollar sinks after Christchurch quake; Libyan unrest escalates

By Paul McBeth

Feb. 23 (BusinessDesk) – The New Zealand dollar fell to a two-month low as the market pushed out its expectations for interest rate hikes after yesterday’s 6.3 magnitude earthquake in Christchurch, while global investors eschewed riskier assets amid growing unrest in Libya.

The kiwi fell as low as 74.43 U.S. cents after the biggest earthquake since September’s 7.1 tremor hit the South Island city, adding to the estimated $5 billion worth of damage from the first shake. Traders pushed out their expectations for the central bank to start hiking interest rates, and are betting Governor Alan Bollard will lift the official cash rate 24 basis points over the coming 12 months, according to the Overnight Index Swap curve, down from the 0.5 percentage point increase forecast beforehand.

Escalating violence in oil-producing nation Libya prompted investors to spurn riskier assets in favour of so-called safe havens, with the Volatility Index, or VIX, known as Wall Street’s ‘fear gauge’ rising 13% to 21.03, the highest level since early December.

“We now expect the RBNZ to keep the OCR unchanged for the rest of 2011, as economic activity is again significantly disrupted and any repair and rebuild is significantly delayed,” said Mike Jones, strategist at Bank of New Zealand. “Developments and updates from Christchurch will continue to influence the NZ dollar and interest rate markets.”

The kiwi sank to 74.84 U.S. cents from 75.15 cents yesterday, and dropped to 66.68 on the trade-weighted index of major trading partners’ currencies from 67.02. It fell to 61.91 yen from 62.54 yen yesterday, and rose to 74.97 Australian cents from 74.94 cents. It declined to 54.79 euro cents from 55.27 cents yesterday, and was little changed at 46.39 pence from 46.45 pence.

Jones said the currency may trade between 74.40 U.S. cents and 75.50 cents today.

Ratings agencies Standard & Poor’s and Moody’s Investors Service expect the earthquake will add pressure to the government’s finances. S&P has the nation’s sovereign crediting rating on a negative outlook due to its high foreign indebtedness.

The earthquake dominated headlines yesterday, overshadowing Fonterra Cooperative Group’s increase to the forecast pay-out to farmers. The dairy exporter lifted its expected pay-out before retentions by 60 cents to a range of $7.90 to $8. The lift came from a hike in the milk price to $7.50 a kilogram of milk solids, while distributable profit held at 40 cents and 50 cents.

(BusinessDesk)

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