Muldoon US47c jibe puts kiwi in spin

Press, 20 March 1987, Page 10

Muldoon US47c jibe puts kiwi in spin

PA Wellington The New Zealand dollar swung through a wild USl.5c range in hectic trading on the foreign exchange market yesterday, following comments from the Opposition spokesman on foreign affairs, Sir Robert Muldoon, that US47c would be 'a more realistic value for the kiwi. A low dealt at U555.35C and a high of U556.80C in New Zealand’s time zone threw the market into widespread confusion. Trading in New Zealand went later than usual. By the close of business the kiwi was at U555.40/55C against 56.80/87C in the morning and U556.95/02C on Wednesday night in New Zealand. Sir Robert has, in the last few weeks, been pushing the Opposition caucus to adopt a managed, or “dirty” float and the Opposition has yet to release its policy on foreign exchange.

One dealer said the selldown came when the market was generally bearish.

Selling pressure from offshore sparked the fall,

and the unit met little or no support domestically when New Zealand markets opened. Asked whether the fall could be attributed to Sir Robert, the dealer said: “The bearish sentiment was already there before he said it, but his comments may have triggered something.” More important, chartists were forecasting a sharp downward correction to U554.80c, followed by a period of consolidation. Other dealers described Sir Robert’s comments as “spurious,” but they had made the market nervous. Offshore markets appeared to use Sir Robert’s comments as an excuse to sell an already “toppish” New Zealand dollar, which reached a high of US57c on Wednesday.

Pressure emerged in London overnight, later snowballing in the Far East.

In the past week a pattern has emerged with the kiwi being sold down in New Zealand while Asian markets have taken it up. Trading over the last 24 hours showed a

reversal of the trend. But the fundamentals have not changed. Wholesale interest rates have averaged 26 per cent during the last three days and this should continue to underpin the unit. In New York, the U.S. dollar and sterling both closed slightly higher on Wednesday (early yesterday N.Z. time), and market activity subsided from Tuesday’s brisk pace.

With no clear view emerging on the health of the U.S. economy, there is little to push the dollar outside the five pfennig range that has prevailed since last month’s meeting of the six major industrial powers, dealers said.

The dollar traded listlessly most of the day, ending at 1.8355/65 Deutsche marks, up marginally from 1.8335/45. And while sterling held firm, its advance had moderated when it responded to a favourable U.K. Budget. Sterling closed at $U51.6070/80, up from $U51.6035/45, and about 2.951 Dm up from 2.942.

Dealers said that the pound continued to benefit from the popular Bud-

get which included a larger than expected reduction in the U.K. public sector borrowing requirement for 1987-88. The Budget bolstered already strong demand for U.K. Government bonds, so boosting sterling. And in London, Britain’s pound soared to its highest value since May, 1983, as British banks cut interest rates. The dollar was hardly changed, while gold eased. Sterling rose USlc to $U51.6076, and gained nearly 2i/ 2 pfennigs to close at 2.9543 Dm. Investors scrambled to snap up British bonds and shares as British banks confirmed a widely-held view that the Budget promised lower interest rates. An unexpectedly large Budget cut in the Government’s projected borrowing means there will be more money available for companies and consumers, and in response, banks cut their base lending rates 0.5 percentage points to 10 per cent. Foreign investors moved to buy up bonds and other interest bearing securities before lower rates raise their prices.