N.Z. Dollar Weakens on Wider-Than-Forecast Current-Account Gap

by Candice Zachariahs

March 24 (Bloomberg) -- The New Zealand dollar fell against 12 of the 16 most-active currencies after the nation’s current- account deficit widened more than economists expected.

Australia’s dollar rose to the highest level against the euro since the single currency’s introduction in 1999 on concern budget deficits in European nations including Greece are heightening the risks of a double-dip recession in the region. Declines in the so-called kiwi were tempered before a report tomorrow that economists said will show gross domestic product grew at the fastest pace in two years.

“We’ve seen a drop in the currency on the back of the current-account numbers,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The risk from the GDP data is that it provides a reminder to markets that the New Zealand economy is in pretty good shape.”

New Zealand’s dollar weakened 0.5 percent to 70.37 U.S. cents as of 4:31 p.m. in Sydney from yesterday in New York. The currency slid 0.3 percent to 63.75 yen. Australia’s currency rose as high as 68.36 euro cents, before trading at 68.29 from 68.06 yesterday. The Aussie was at 91.67 U.S. cents from 91.88 cents, and bought 83.04 yen from 83.06 yen.

The New Zealand currency will find buyers toward 70.30 U.S. cents, Jones said.
New Zealand’s annual current-account deficit was 2.9 percent of gross domestic product in the 12 months ended Dec. 31, compared with 3.2 percent in the year to Sept. 30, the statistics agency said. Economists surveyed by Bloomberg News forecast the shortfall would be 2 percent.

Australian Workers 

Australia’s dollar weakened for the first day in three versus the greenback as the euro dropped to its lowest level since May 2009 after French and German leaders said an aid package to Greece would require help from the International Monetary Fund, undermining confidence in the European Union. Europe’s leaders begin a two-day summit tomorrow.

“The Aussie-U.S. dollar should continue to trade in tandem with risk, and the situation in Greece ahead of the European Union summit later in the week is likely to continue to weigh on the pair,” a team led by London-based Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, wrote yesterday in a report. The currency will find support toward 90.80 U.S. cents, the bank said.

Declines in the Australian dollar were limited as a government report showed an index measuring the number of jobs available for skilled workers rose 2.4 percent in March from the prior month.

Benchmark interest rates are 4 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

New Zealand’s economy expanded 0.8 percent in the last three months of 2009, according to a Bloomberg survey before the statistics bureau report tomorrow. That would be the fastest since the fourth quarter of 2007.

N.Z. Rates 

New Zealand’s dollar may outpace the currencies of other commodity-led economies, including Australia and Brazil, on bets the nation’s benchmark interest rate will rise at the fastest pace in the Group of 10, according to Royal Bank of Canada.

Swaps traders are betting New Zealand’s central bank will increase its target rate by 170 basis points over the next year, compared with expectations of 145 points at the end of February, according to a Credit Suisse Group AG index.

“The market is under-pricing the pace and magnitude of the upcoming tightening cycle,” said Sue Trinh, Hong Kong-based senior currency strategist at Royal Bank of Canada, Canada’s largest lender. “We forecast 200 basis points at least in the next 12 months.” The currency will rise to 75 U.S. cents and NZ$1.22 versus Australia’s dollar by mid-2010, she said.

New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 4.22 percent from 4.19.

Australian government bonds fell. The yield on the benchmark 10-year note rose four basis point to 5.70 percent, according to data compiled by Bloomberg. The 4.5 percent security due April 2020 dropped 0.25, or A$2.50 per A$1,000 face amount, to 90.93.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.
Last Updated: March 24, 2010 01:33 EDT