$NZ drops to US58c

Press, 29 July 1989, Page 23

$NZ drops to US58c

NZPA Wellington The New Zealand dollar dropped in value yesterday to US5Bc, apparently in line with the weakening Australian dollar and falling domestic interest rates. At mid-day the Reserve Bank indicative rate on 5year bonds reached 12.78% but fell back to 12.70 at close, and dealers said they expected demand for the currency to continue weakening next week. The kiwi could not sustain its climb against the dropping U.S. dollar in the face of dropping interest rates triggered by the Government’s “responsible” budget statement. The kiwi opened at U558.42/52C, against Thursday night’s close of U558.65/75C. By last night’s close at U 558.01/ 11c the currency had moved between a high of U558.50c and had dipped as low as U557.80c. A dealer said the fluctuation occurred after a rumour that Moody’s credit rating agency was to downgrade Australia’s rating for the second time in recent weeks, but the dollar rebounded when the rumour proved baseless. Overseas investors underpinned the kiwi to take an interest in New Zealand as both the US and Australian dollars declined in value and they cast around for another secure investment. Thursday night’s budget statement apparently made little impact, though investors expressed interest in the Government’s cutback in borrowing for the next year, which made more attractive long-term investments such as five-year bonds, which firmed marginally to 12.78% from 12.75% overnight. Many investors had already taken into account the Government’s borrowing programme, but the Budget statement still stirred some interest, the dealer said. The Australian dollar opened at U575.70/80c in New Zealand, from its U575.67/74c close on Thursday night and at Friday’s close had fallen to U574.97/04C. On cross-rates, the New Zealand dollar closed at Aust77.39c, 1.08 marks, 35.09 pence and at 81.34 yen.

The Reserve Bank trade-weighted index recovered to 60.2 at 3 p.m., compared with indicative figures earlier in the day of 60.1, down from 60.2 at 9 a.m. and Thursday’s 3 p.m. fix of 60.3. It was 59.4 a week ago. The U.S. dollar closed mixed in New York after recovering in light but volatile trading on shortcovering on Thursday (early yesterday N.Z. time). It fell on lower-than-expected 1.7% growth in U.S. secondquarter gross national product. “The market decided overnight to sell the dollar as the (Federal Reserve) was easing, and was caught by excessive short positions," said a dealer. But dealers said the recent clear sign of easier credit in the United States would erode the dollar’s attraction in coming weeks. The dollar ended at 1.8770/80 marks against Wednesday’s 1.8665/75 and at 139.07/17 yen against 140.00/05. The dollar fell to lows of 1.8610 marks and 138.70 yen early in the morning after the G.N.P. data was released. The dollar was saved by profit-taking on short dollar/long Swiss franc and long mark/short yen positions ahead of monthend, dealers said. A mark dealer said, “the interest rate scenario was overplayed.” A yen dealer at a Japanese bank said, “The GNP figure was smaller than expected, but that was not a surprising figure either.” Some Japanese investors bought the dollar at its lows, prompting covering of short dollar positions, he added. After Japan’s Parliamentary election and Japanese Prime Minister Sosuke Uno’s announcement that he would resign soon, market attention shifted quickly from Japanese politics to a lowering of U.S. interest rates, dealers said. The dollar closed higher at 1.6145/55 Swiss francs from Wednesday’s 1.6040/50, but was little changed at sCanl.lB32/37 from 1.1834/39. Sterling finished lower at $U56545/55, down from 1.6585/95.