Credit downgrade hits Kiwi dollar

Photo / The Listener

Ratings agency Fitch's decision to downgrade New Zealand's credit rating has failed to send this country's sharemarket into a fall, although it has placed downward pressure on the kiwi dollar.

The benchmark NZX-50 index was up 0.24 per cent at 3,308 at 11.30am.

The kiwi dollar dropped from US78.30 against the greenback to US76.52 between 2.30am and 8am this morning, but had clawed its way back to US76.92 by 11.30am.

Kevin O'Sullivan, head of financial markets at Auckland's OM Financial, expected the Fitch downgrade to have a limited impact on the New Zealand's dollar and equity market.

He said whatever happened on big markets offshore would have more of an effect.

"This (the Fitch downgrade) has been in the pipeline for a while, it's almost like the monkey is off our back now that it has happened rather than having the threat hang over us," O'Sullivan said.

Fisher & Paykel Healthcare was up 2.86 per cent at $2.52 in early trading, while AMP was up 2.94 per cent at $4.90.

Goodman Fielder had dropped 7.54 per cent to 65c after announcing the successful completion of a new share offer.

O'Sullivan said the fact that US equity markets finished in positive territory would probably help push the New Zealand dollar and NZX-50 higher today.

The Dow Jones Industrial Average closed up 1.30 per cent, while the broader S&P 500 finished trading up 0.81 per cent.

Both indices finished sharply down in the previous day's trading.

Westpac senior market strategist Imre Speizer said the almost 2c fall in the New Zealand dollar, versus the greenback, this morning was only partly related the Fitch downgrade.

His said sentiment took a turn towards risk aversion during the early hours of the morning, pushing the kiwi from US78.30 to US77.50 by the time the news of the downgrade hit markets at around 5.30am, which then sent it to its low of US76.92 at 8am.

The Fitch downgrade supported Westpac's bearish outlook on the kiwi-US cross rate, Speizer said.

The bank expects the New Zealand dollar to head to around US72c over the next few months.

"If anything (the downgrade) just adds a bit more credence to our view," Speizer said. "I'm now even more confident that we will see those levels in time - not in the next week, but in the many weeks to come."