Currency: Kiwi sold off as war looms closer

The New Zealand dollar looked set to slide below US54c tonight as war beckoned in the wake of the United States' ultimatum today to Iraq president Saddam Hussein.

By 5pm the kiwi had fallen to US54.88c, from US55.46c at yesterday's local close, while its Australian counterpart was at US59.25c (US60.12c).

"It's all been a US dollar story with (President George W) Bush's comments," one local dealer said today.

Mr Bush said in a televised address that Saddam Hussein and his sons had to leave Iraq within 48 hours or face a US-led attack.

"The kiwi's held up relatively well, I think people are still a little bit unsure of the next move," the dealer said.

"The market knew what was going to be said today and they sold the euro down two big figures, they sold the aussie down 70 points, and they sold the kiwi down 70 points.

"To me, it's been a case of buy the rumour, sell the fact, with the buying of the rumour having happened in the last three to five months," he said.

"Now we're at D-day there may be a few people thinking, 'the risk is that it becomes a short war, and the US dollar recovers rather quickly and if that happens, we need to lighten our load'."

The kiwi traded between US54.69c and US55.05c today.

"... I think we will see the kiwi fall quite sharply. I think tonight will be the deciding night, but there are definite risks the kiwi will fall to US53.80c, the aussie to about US58.30, and the euro sub-$US1.0500," he said.

The greenback gave up most of its early gains in Asia today as the hopes in some quarters for a quick end to a US-led war against Iraq were tempered by fears of terror attacks.

The greenback initially rose to three-week highs against the yen and approached two-month highs against the euro as traders saw war as having only a limited impact on the US economy.

But the morning's gains were quickly erased as traders focused on Bush's reference to a heightened alert for possible "terror operations", and the US was placed on the second-highest level of security alert.

In Wellington the euro eased to $US1.0640 by 5pm, from $US1.0813 late yesterday, while the US dollar rallied to 118.55 yen from 117.92 yen late yesterday.

Against its main trading partners at 5pm the kiwi was buying A92.59c (A92.26c), 0.5157 euro (0.5129), 0.7570 Swiss francs (0.7524), 65.04 yen (65.39), and 35.01 pence (34.91).

The Australian dollar softened to $NZ1.0800 ($NZ1.0846).

On the money market, 90-day bills were at 5.85 per cent (5.81), the monetary conditions index was at plus 190 (plus 200), and the trade-weighted index was at 60.69 (60.83).

On the bond market New Zealand government bonds followed a sharp sell-off in US Treasuries as investors booked profits and favoured equities. The April 2004s were at 5.50 per cent (5.42), the November 2006s were at 5.58 per cent (5.46) and the November 2011s were at 5.95 per cent (5.82).

- NZPA